Table of Contents
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN
ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of April 2016
Eni S.p.A.
(Exact name of Registrant as specified in its
charter)
Piazzale Enrico
Mattei 1 - 00144 Rome, Italy
(Address of principal executive offices)
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F x Form 40-F o
(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2b under the Securities Exchange Act of 1934.)
Yes o No x
(If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): )
Table of Contents
Notice of Shareholders’ Meeting 2016
Report of the Board of Directors to the Shareholders’ Meeting
Press Release dated April 12, 2016
Press Release dated April 21, 2016
Press Release dated April 29, 2016
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorised.
| Eni S.p.A. |
||||
| Name: Antonio Cristodoro | ||||
| Title: | Head of Corporate Secretary's Staff Office | |||
Date: April 30, 2016
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Published on April 7, 2016
ENI S.P.A. ORDINARY SHAREHOLDERS’
MEETING ON MAY 12, 2016 REPORT OF THE BOARD OF DIRECTORS |
The Italian text prevails over the English translation.
- 1 -
Table of Contents
ENI S.P.A.
ORDINARY
SHAREHOLDERS’ MEETING ON MAY 12, 2016
ON SINGLE CALL
REPORT
OF THE BOARD
OF DIRECTORS
ON THE ITEMS OF THE AGENDA
ITEM
1
ENI S.P.A. FINANCIAL STATEMENTS
AT DECEMBER
31, 2015
RELATED RESOLUTIONS.
ENI
CONSOLIDATED
FINANCIAL
STATEMENTS
AT DECEMBER
31, 2015
REPORTS
OF THE DIRECTORS, OF THE BOARD OF STATUTORY
AUDITORS AND OF THE AUDIT FIRM
Dear Shareholders,
The document "Annual Report at December 31,
2015" of Eni SpA, which will be available at the
Company’s registered office as required by law, on the
Company’s website, at Borsa Italiana SpA (the Italian Stock
Exchange) and at the centralized storage device authorised by
Consob called "1Info" – which can be consulted on
the website www.1info.it, includes the draft of the financial
statements of Eni SpA and the consolidated financial statements,
along with the Directors’ report on operations and the
declaration pursuant to Article 154-bis, paragraph 5 of
Legislative Decree No. 58 of February 24, 1998 (Consolidated Law
on Finance, hereinafter "T.U.F."). The Reports of the
Audit Firm and of the Board of Statutory Auditors will be
available to the public together with the Annual Report.
Reference is therefore made to these documents.
Dear Shareholders,
You are invited to resolve as follows:
"The Ordinary Shareholders’ Meeting
resolves
to approve the financial statements at December 31, 2015 of Eni SpA which report a net profit amounting to 1,918,250,170.12 euro."
- 2 -
Table of Contents
ITEM 2
ALLOCATION OF NET PROFIT
Dear Shareholders,
in regard to the results achieved, you are invited to
resolve as follows:
"The Ordinary Shareholders’ Meeting
resolves
| to allocate the net profit for the period of 1,918,250,170.12 euro, of which 477,794,116.92 euro remains following the distribution of the 2015 interim dividend of 0.4 euro per share, resolved by the Board of Directors on September 17, 2015, as follows: |
| - | the amount of 66,263,004.18 euro to the reserve required by Article 6, paragraph 1, letter a) of Legislative Decree No. 38 of February 28, 2005; | |
| - | to Shareholders in the form of a dividend of 0.4 euro per share owned and outstanding at the ex-dividend date, excluding treasury shares on that date, and completing payment of the interim dividend for the financial year 2015 of 0.4 euro per share to the extent of remaining net profit and drawing on the available reserve where necessary. The total dividend per share for financial year 2015 therefore amounts to 0.8 euro per share; | |
| - | the payment of the balance of the 2015 dividend in the amount of 0.4 euro, payable on May 25, 2016, with an ex-dividend date of May 23, 2016 and a record date of May 24, 2016." |
ITEM
3
APPOINTMENT
OF A DIRECTOR
PURSUANT TO ARTICLE 2386 OF THE ITALIAN CIVIL CODE
Dear Shareholders,
On July 2, 2015, Luigi Zingales, elected from the list of
the Ministry of the Economy and Finance and voted by a majority
of the shareholders that participated in the Shareholders’
Meeting of May 8, 2014, submitted his resignation as Director.
Pursuant to Article 2386, first paragraph, of the Italian
Civil Code and Article 17.5 of the By-laws of Eni SpA, on July
29, 2015, the Board of Directors, following prior assessment by
the Nomination Committee and with a resolution approved by the
Board of Statutory Auditors, co-opted Alessandro Profumo as
Director replacing Luigi Zingales. In accordance with Article
2386, first paragraph, of the Italian Civil Code, the term of
Alessandro Profumo as a non-executive and independent Director
terminates as of the date of this Shareholders’ Meeting.
It is therefore necessary to appoint a Director, who will
remain in office for the duration of the term of the current
Board of Directors, namely until the date of the
Shareholders’ Meeting that will approve the financial
statements at December 31, 2016. In these circumstances, the
slate voting procedure does not apply, as it is only used to
elect the entire Board of Directors in accordance with Article
17.3 of the By-laws of Eni SpA.
Accordingly the resolution appointing the Director shall be
approved with the majority required by law.
- 3 -
Table of Contents
Without prejudice to the right to present nominations for the position of Director directly at the Shareholders’ Meeting, shareholders are asked to notify the Company and the public with appropriate advance notice of any proposed nominations that they intend to submit to the Shareholders’ Meeting. Shareholders may only submit nominations if they are accompanied by complete information on the personal and professional characteristics of the candidates, the statements of the candidates accepting the nomination and affirming, under their personal responsibility, the absence of any grounds making them ineligible or incompatible for such position and that they satisfy the requirements for the position established by applicable law and the By-laws (including the satisfaction of any independence requirements established by the By-laws and their qualification as "independent" under Article 3 of the Corporate Governance Code for listed companies, which Eni has adopted) as well as the list of any administration and control positions they may hold in other companies. In this regard, you are invited to take due account of the policy on the maximum number of offices Directors may hold in other companies approved by the Company’s Board of Directors in accordance with Article 1.C.3 of the Corporate Governance Code and published on the Company’s website.
In view of the work of Mr. Profumo in these past few months, his former experience on the Board of Directors of the Company and his professional standing and international experience, the Board recommends re-electing Alessandro Profumo as a Director of this Company. Complete information on the personal and professional characteristics of the Director and on other positions he has held is available on the Company’s website. In addition, the Board of Directors, most recently at its meeting of February 25, 2016, has ascertained that Alessandro Profumo meets the integrity requirements, that there are no grounds making him ineligible or incompatible for the office and that he meets the independence requirements established by law, as referred to the By-laws of the Company, as well as those recommended by the Corporate Governance Code.
Dear Shareholders,
We invite you to nominate and elect a new Director in
accordance with Article 17 of the By-laws, who will remain in
office for the duration of the term of the current Board of
Directors and, therefore, until the date of the
Shareholders’ Meeting that will approve the financial
statements at December 31, 2016.
ITEM
4
REMUNERATION
REPORT (SECTION
I): POLICY
ON REMUNERATION
Dear Shareholders,
The Remuneration Report has been prepared on the basis of
Article 123-ter of the T.U.F. and of Article 84-quater of
the Issuers’ Regulation.
Pursuant to Article 123-ter, paragraph 6, of the
T.U.F., the Shareholders’ Meeting shall resolve in favor or
against the first section of the Remuneration Report regarding
the Company's policy on the remuneration of Board Directors and
others managers with strategic responsibilities and the
procedures used to adopt and implement this policy. The
resolution is not binding.
- 4 -
Table of Contents
Please refer to the Remuneration Report approved by the Board of Directors, which will be published accordance with the time limits and procedures required by law, as well on the Company’s website (www.eni.com).
Dear Shareholders,
You are invited to resolve as follows:
"The Ordinary Shareholders’ Meeting
resolves
in favor of the first section of the Remuneration Report regarding the Company's policy on the remuneration of Board Directors and other managers with strategic responsibilities and the procedures used to adopt and implement this policy".
The Chairman of the Board of Directors |
|
EMMA MARCEGAGLIA |
- 5 -
Table of Contents
Contents
Table of Contents
Contents
Table of Contents
Contents
Table of Contents
Contents
Table of Contents
Contents
Table of Content
|
||||
| Eni’s 2015 integrated annual report is
prepared in accordance with principles included in the
"International Framework", published by
International Integrated Reporting Council (IIRC). It is
aimed at representing financial and sustainability
performance, underlining the existing connections between
competitive environment, group strategy, business model,
integrated risk management and a stringent corporate
governance system. Since 2011, Eni takes part in the IIRC
Pilot Program, whose aim is to define an international
framework for integrated reporting. Disclaimer This annual report contains certain forward-looking statements in particular under the section "Outlook" regarding capital expenditures, development and management of oil and gas resources, dividends, allocation of future cash flow from operations, future operating performance, gearing, targets of production and sale growth, new markets, and the progress and timing of projects. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results may differ from those expressed in such statements, depending on a variety of factors, including the timing of bringing new fields on stream; management’s ability in carrying out industrial plans and in succeeding in commercial transactions; future levels of industry product supply; demand and pricing; operational problems; general economic conditions; political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; development and use of new technology; changes in public expectations and other changes in business conditions; the actions of competitors and other factors discussed elsewhere in this document. "Eni" means the parent company Eni SpA and its consolidated subsidiaries. Ordinary Shareholders’ Meeting of May 12, 2016. The extract of the notice convening the meeting was published on "Il Sole 24 Ore" and the "Financial Times" of April 7, 2016. |
Integrated Annual Report | |||
| 4 | Letter to shareholders | |||
| 8 | Profile of the year | |||
| 13 | Materiality and stakeholder engagement | |||
| 16 | Business model | |||
| 18 | Targets and performance drivers | |||
| 20 | Connectivity of performances | |||
| 21 | Strategy | |||
| 22 | Competitive environment | |||
| 24 | Risk management | |||
| 28 | Governance | |||
| Operating review | ||||
| 32 | Exploration & Production | |||
| 49 | Gas & Power | |||
| 54 | Refining & Marketing | |||
| 59 | Discontinued operations | |||
| Financial review and other information | ||||
| 62 | Financial review | |||
| 66 | Profit and loss account | |||
| 72 | Summarized Group balance sheet | |||
| 74 | Summarized Group cash flow statement | |||
| 75 | Risk factors and uncertainties | |||
| 92 | Outlook | |||
| 93 | Other information | |||
| 94 | Integrated performances | |||
| 99 | Glossary | |||
Contents
 |
|
| In 2015, the transformation of Eni which
management started |
| Among the achieved results,
the Saipem transaction was finalized on February 26,
2016. In addition to the deconsolidation of Eni’s
interest, the reimbursement of intercompany loans has
freed important financial sources to be reinvested in the
development of the considerable mineral resources
recently discovered, while maintaining a strong capital
structure. Exploration has been once again a driver of value creation. Significant discoveries have been made in Indonesia, Congo, Gabon and, above all, in the deep Egyptian offshore with the super giant Zohr gas field. The asset with a potential of up to 30 trillion cubic feet of gas in place represents the largest ever discovery of the Mediterranean Sea. All the discoveries will be developed with competitive time-to-market; in particular Zohr is expected to come on stream by the end of 2017. In 2015, the total additions to the Company’s reserve backlog amounted to 1.4 billion of boe, at a unit cost of less than one dollar per barrel. 2015 production averaged 1.76 million of barrel per day, representing an increase of 10% that was the highest rate of growth since 2001. Production was started-up at 10 major fields, among which West Hub in Block 15/06 in Angola and the super giant gas field Perla in Venezuela. These results leveraged on our growth model which envisages, when applicable: i) a phased approach so as to mitigate geological risks and reduce financial exposure; ii) modular and standard solutions which ensure cheaper and quicker availability; and iii) direct supervision of Eni personnel on crucial activities of construction and |
commissioning. Consistently
with this model, our resources will be even more
concentrated on operated projects, preserving our
leadership position in project management. The production replacement rate was 148% thanks to additions from ongoing development projects. New reserves additions were particularly significant in Venezuela, Congo, Ghana and Egypt. At the end of 2015, the Company’s proved hydrocarbon reserves amounted to about 7 billion barrels, all conventional, with a life index of 11 years. In the Refining & Marketing business (R&M), we started a number of initiatives to restructure the industrial setup: the green refinery project at the Venice plant is currently in an advanced phase, while it has started at the Gela site. Widespread actions progressed to upgrade plants and improve energy efficiency and yields at plants with traditional feedstock. These initiatives, along with an improved scenario and steady marketing performance, allowed the segment to achieve positive adjusted operating profit and free cash flow earlier than forecasted. The Gas & Power (G&P) reported an adjusted operating profit almost at break-even while cash generation was excellent due to almost full recovery of take-or-pay volumes. These goals were achieved taking into consideration the importance of environmental risk management as well as health and safety of our employees and all those who work at the Company’s industrial sites. |
4
Contents
Eni Integrated Annual Report |
|
5 | ||
Letter to shareholders |
 |
||||
| In terms of safety and
carbon footprint we achieved outstanding results in the
year, leveraging on our operating model of excellence
standard, strict control of industrial processes and
sustainability of our value chain. In safety we have been the best performer in the industry for the last three years. In 2014, total recordable injury rate was 0.7, 43% lower than the peer average of 1.24. In 2015, we further reduced this rate by 37% to 0.45, confirming our commitment to improving our safety performance, targeting a zero level of injuries every year. In the 2010-2014 period, we reduced greenhouse gas emissions by 27%, from 59 to 43 million tons, thus reaching a level of unitary emission of 0.2 CO2 per ton of oil equivalent produced. For the future, we plan to further improve these levels, targeting a 43% reduction of emissions by 2025. These results were made and will be possible thanks to our action plan, able to reconcile short and long-term targets. This plan is mainly based on: i) focus of our portfolio on conventional projects, featured by lower emission level; ii) increasing exposure to natural gas; iii) flaring down and energy efficiency projects; iv) the green reconversion of part of the downstream business’ capacity to produce renewable fuels. Furthermore, this year we set up the Energy Solutions business unit with the purpose of identifying and implementing |
growth opportunities in the
business of renewable energies. In addition, we started
to consider in our investment decisions a figurative
additional cost of emissions equal to $40 per ton, so as
to enhance energy efficiency among the requisites of
projects profitability. Finally, neither blow-outs nor well accidents have occurred in the last twelve years.
Leveraging on this strategy Eni achieved robust financial results in 20151. First of all, cash flow from operations. Cash generation of euro 12.2 billion, only 15% down from last year, while Brent price has fallen by approximately 50%. This result placed Eni among the |
(1) The results described below exclude Saipem and Versalis contributions which are in the disposal phase.
Contents
| 6 | Eni Integrated Annual Report |
|
||
Letter to shareholders |
| best players in the
oil&gas industry. This result was mainly achieved due
to the performance of the E&P segment which, with
about euro 9 billion, was confirmed to be the main driver
of cash generation. Working capital optimization
initiatives in all businesses have also underpinned this
result. Capital expenditures decreased by 17% compared to
last year, at homogeneous exchange rates, and were funded
at 100% with operating cash flow, reducing our target
Brent price for organic capex coverage to 50 $/bl from 63
$/bl initially foreseen. Dividend cash-out was euro 3.46
billion. The pro-forma effects of Saipem transaction at
December 31, 2015 reduced net debt by euro 4.8 billion
and yielded reduction in leverage to 0.22, compared to
0.31 as of the reporting date. Adjusted operating profit of euro 4.1 billion was negatively affected by the commodity scenario, down by about euro 9 billion, partially offset by euro 2 billion gains from production growth as well as efficiency and optimization initiatives. Adjusted net profit was positive at euro 0.3 billion. Looking ahead, we expect that market imbalances due to the prolonged oversupply and uncertainty on world energy demand will generate a slower recovery in Brent prices. Therefore, we revised downward the Brent scenario in the long-term to 65 $/bl, compared to 90 $/bl of the previous plan. Thus, the strategy was defined taking into account three different time horizons: i) in the short term, financial solidity will be pursued by means of cash flow maximization, leveraging on further efficiency gains and the acceleration of renegotiations of contracts for oilfield services and assets; ii) in the medium term, the focus will be on capex to develop material resources in the Company’s portfolio, characterized by a low break even, so as to guarantee reserves’ replacement and production growth; iii) in the long-term, we plan to lay foundations for the company in order to get ready for the low-carbon energy era. In the 2016-2019 period, we estimated an investment plan of euro 37 billion (net of capex associated with the disposal program), that will be directed for 90% to the upstream, down by 21% compared to the previous plan at constant exchange rates. In spite of the expenditures to develop the new giant project of Zohr, the reduction of total capex will be achieved through the rescheduling/reconfiguration of a number of |
development projects and the
renegotiation of supply contracts in the upstream
segment. While lowering capital expenditure in the E&P business, we confirm an average annual growth rate of hydrocarbon production higher than 3% for the next four years, thanks to the contribution of several start-ups in addition to the ramp-up of fields started-up in 2015. Start-ups and ramp-ups will add more than 800 kboe/d by 2019. Among the main projects, it is worth mentioning Zohr in Egypt, whose final investment decision was taken at the beginning of 2016, Jangkrik in Indonesia, with the related gas contracts signed in 2015, the East Hub project in the Block 15/06 in Angola, while the West Hub project is in the ramp-up phase. Furthermore, final investment decision for the OCTP project in Ghana was taken in 2015. Among the start-ups of 2016, it is worth mentioning Goliat in Norway started up in March, as well as the re-start of Kashagan, expected in the fourth quarter. Production profitability will be underpinned by lower operating costs and, in some cases, by the revision of petroleum contracts. The exploration activity will continue to be focused on near-field high-value projects with accelerated returns, in addition to better delineation of recent discoveries. We target to discover 1.6 billion boe of new resources at a unit cost of $2.3 per barrel in the 2016-2019 period. In Mozambique, the final investment decision for the Coral development is expected to be taken by the end of 2016, having already obtained government authorization for the development plan and finalized the main terms of the sale of entire gas production. In the Gas & Power segment, the priority is to consolidate the profitability on the back of an unfavorable scenario featured by weak demand recovery, competitive pressure and institutional uncertainties which hold back the re-launch of the role of gas in the European energy mix. The main drivers will be the renegotiation of long-term contracts to align supply costs to the market conditions, rationalization of logistics, the focus on segments with high added value (such as LNG and retail markets) and, in the long-term, the synergies which will be achieved by the better valorization of gas reserves in the upstream segment thanks to |
Contents
Eni Integrated Annual Report |
|
7 | ||
Letter to shareholders |
| competences in trading
activities. Such actions make us foresee an operating
profit structurally positive starting from 2017. In the Refining & Marketing segment, we expect a gradual worsening of the refining margins, in light of structural weakness of the European refining system due to overcapacity and competitive pressure. The defined actions are aimed to face these expectations, further reducing the break-even margin by upgrading refinery conversion plant, optimization and logistics rationalization as well as by refocusing our portfolio on green fuels. In Marketing activity, profitability will be underpinned by supply differentiation, service quality and innovation, in addition to reduced cost per liter of fuel. Taking into accounts all these drivers, Eni management envisages positive results and cash generation in the next four-year period. The industrial actions defined in the plan will allow us to preserve cash generation and to grow selectively, creating value for our shareholders. The implementation of a euro 7 billion disposal program to be carried out in the early years of the plan will provide additional financial resources to support healthy financial ratios across the lows of the cycle. Such disposals will mainly relate to the dilution of our substantial interests in exploration assets, where sizable exploration success was recently achieved (Eni’s strategy of "dual exploration model"). Efficiency improvements, contract renegotiations and further flexibility provided by our oil&gas assets portfolio will allow us to lower our threshold for Brent break-even price. |
For the year 2016, cash
neutrality is expected to be reached at around 50 $/bl,
including disposals, vs. the previous guidance of
approximately 60 $/bl, while for the year 2017 the price
of cash neutrality, excluding disposals, has been reduced
to 60 $/bl compared to the previous guidance of <75
$/bl. We are aware of reach and complexity of the future challenges which will require full engagement, Group identity and commitment of Eni’s women and men so as to enable the Company to continue progressing in value creation. At the same time, we are confident that thanks to the transformation process implemented by our management, nowadays Eni can leverage on an excellent competitive positioning, further strengthened by our recent exploration successes, a robust pipeline of projects and a solid financial structure to withstand the downturn from a strong base. We believe that the actions defined in the 2016-2019 strategic plan are able to combine the necessity for efficiency, spending selection and financial discipline with those of the profitable and sustainable growth in core oil&gas business, creating the fundamentals for a robust recovery of profitability even in a very difficult environment like the current one. In light of the achieved results and Company’s outlook, we intend to propose to the Annual Shareholders’ Meeting a dividend of euro 0.8 per share, of which euro 0.4 per share paid as interim dividend in September 2015. |
March 17, 2016
In representation of the Board of Directors |
|
Emma Marcegaglia |
Claudio Descalzi |
| Chairman | Chief Executive Officer and General Manager |
|
|
Contents
| Robust cash flow 12.19 bln euro in a Brent price scenario of 53 $/bl |
Overview > In 2015, on the back of a weak
Brent price scenario, Eni achieved remarkable results
leveraging on its refocused portfolio, profitable growth
in the upstream segment and cost efficiency programs. Adjusted results from continuing operations on a standalone basis1 > Adjusted operating profit was euro 4.1 billion, down by 64% (or by euro 7.34 billion) primarily reflecting the lower contribution from the upstream segment (down by euro 7.44 billion, or by 64%), due to falling commodity prices, with an impact of euro 8.8 billion net of currency differences, partially offset by production growth and efficiency gains of euro 2.2 billion while lower one-time effects associated with gas contract renegotiations negatively affected operating profit by euro 0.7 billion. Adjusted net profit was euro 0.33 billion, worsening by euro 3.52 billion from 2014 (down by 91%) due to a decline in operating profit and a higher tax rate driven by the impact of the scenario. |
|
| Cost optimization Capex -17% Upstream opex -13% G&A -0.6 bln euro |
Cost optimization > Efficiency programs,
rationalization and rephasing of costs exceeded our
expectations with capex reduced by 17% (vs. an initial
guidance of 14%), opex per boe reduced by 13% (vs. an
initial guidance of 7%) and G&A down by euro 0.6
billion (vs. an initial guidance of euro 0.5 billion). Mid-downstream business consolidation > The R&M business achieved positive adjusted operating profit and free cash flow earlier than forecasted in our strategic plan. The G&P segment reported an adjusted operating profit almost at break-even, in line with our guidance. Net result from continuing operations > Net loss of euro 7.68 billion due to the recognition of impairment losses driven by Eni’s outlook for Brent crude oil price. Cash flow > Robust cash flow generation (euro 12.19 billion), reduced by 15%, even in a lower Brent price scenario of 53 $/bl, down by 47%. This cash flow, together with cash from disposals of euro 2.26 billion, funded a fair amount of capital expenditure for the year and the financial requirements for the dividend payments to Eni shareholders (euro 3.46 billion). Self-financing > Better performance in self-financed capex achieved in 2015 at a Brent price scenario of 50 $/bl vs. an initial guidance of 63 $/bl for the 2015-2016 period. Leverage > As of December 31, 2015, leverage was 0.31. Net borrowings was euro 16.86 billion. The effects of Saipem transaction reduced net debt by euro 4.8 billion and yielded reduction in leverage calculated on a pro-forma basis to 0.22. Dividend > The Company’s robust results
and strong fundamentals underpin a dividend distribution
of euro 0.8 per share of which euro 0.4 per share paid as
interim dividend in September 2015. |
|
| Eni's
transformation process 12.5% Saipem disposal |
Saipem disposal > On January 22, 2016, there was
the closing of the agreements signed on October 27, 2015
with Fondo Strategico Italiano (FSI). Those include the
sale of the 12.503% stake (1) Exclude as usual the items "profit/loss on stock" and extraordinary gains and losses (special items), while they reinstate the effects relating to the elimination of gains and losses on intercompany transactions with sectors which are in the disposal phase, E&C and Chemical. |
Contents
Eni Integrated Annual Report |
|
9 | ||
Profile of the year |
| of the share capital of
Saipem to FSI and the concurrent entrance into force of
the shareholder agreement with Eni, which was intended to
establish joint control over the former Eni’s
subsidiary. Saipem transaction is in line with Eni’s
strategy: (i) to become even more focused on upstream
core business by making available additional financial
sources to be reinvested in the development of oil and
gas reserves; (ii) to strengthen Eni’s balance
sheet. Versalis disposal
> Negotiations
are underway to define an agreement with an industrial
partner who, by acquiring a controlling stake of Versalis
SpA, would support Eni in implementing the industrial
plan designed to upgrade this business. |
||
| Hydrocarbon production > 1.76 million boe/d, up by 10.1%
from 2014 driven by new fields’ start-ups and the
continuing ramp-up of production at fields started in
2014 (adding 139 kboe/d) mainly in Angola, Venezuela, the
United States and the United Kingdom, higher production
in Libya and Iraq as well as the recovery of trade
receivables for past investments in Iran. Zohr
discovery > Made a world-class gas discovery
at the Zohr exploration prospect in the deep waters of
the Egyptian section of the Mediterranean Sea. This field
is estimated to retain up to 30 trillion cubic feet of
gas in place. In February 2016, the development plan was
approved and first gas is expected in 2017. |
Hydrocarbon
production |
|
| Exploration successes > In 2015, Eni continued its track
record of exploration successes with 1.4 billion boe of
additions to the Company’s reserve backlog (vs. an
initial guidance of 0.5 billion boe) at a cost of $0.7
per barrel. In addition to the supergiant Zohr discovery,
other important successes (Nkala Marine in Congo, Nooros
in Egypt, Area D in Libya, Merakes in Indonesia) were
near-field discoveries with quick time-to-market and
immediate benefits on cash flow, in line with Eni’s
new exploration strategy. Proved reserves > Hydrocarbon proved reserves were 6.89 billion boe, with an organic reserve replacement ratio of 148% (135% on average since 2010). Life index was 10.7 years. Development of new fields
> As
planned, Eni achieved the start-up of 10 relevant fields
among which the giant gas field Perla located offshore
Venezuela, retaining a potential of 17 trillion cubic
feet of gas in place (or 3.1 billion boe) and has been
developed in just 5 years, an industry-leading
time-to-market. The development plan targets a long-term
production plateau of approximately 1,200 mmcf/d through
a third phase of development. |
Exploration successes 1.4 bln boe of resources discovered in the year Proved reserves 6.9 bln boe at year end Fields
development |
Contents
| 10 | Eni Integrated Annual Report |
|
||
Profile of the year |
| Start-up of Goliat > In March 2016, production was
started-up at the Goliat field, located within the
Production License 229, off Norway. Goliat, the first oil
field to start production in the Barents Sea, was
developed through the largest and most sophisticated
floating cylindrical production and storage vessel (FPSO)
in the world. The Unit has a capacity of 1 million
barrels of oil. The daily output will reach 100 kboe/d
(65 kboe/d net to Eni). The field is estimated to contain
reserves amounting to about 180 million barrels of oil. Mozambique > Approved the development plan of
the Coral discovery targeting to put into production 5
trillion cubic feet of gas. The unitization was set out
for the development of the natural gas reservoirs
straddling Areas 4 (operated by Eni) and 1 (operated by
Anadarko). |
||
| Injury
frequency rate -42.4% vs. 2014 progressing for the eleventh consecutive year |
Safety > In 2015, Eni continued to
implement the communication and training program
"Eni in safety" for all its employees. The
initiative and other investments in safety supported a
positive trend (down by 42.4% from 2014) in the injury
frequency rate (down by 27.6% employees injury frequency
rate; down by 48.6% contractors injury frequency rate)
which improved for the eleventh consecutive year. Climate change > In 2015, Eni and the other companies joining the oil&gas Climate Initiative, in a joint declaration of collaboration confirmed their commitment in limiting the average increase of the global temperature below the two degrees threshold. Furthermore, Eni together with other five oil&gas European companies asked the United Nations Framework Convention on Climate Change (UNFCCC) and the COP21, to introduce the systems to define a cost for GHG emissions leveraging on clear, stable and more ambitious regulatory framework. These will also be useful to harmonize different national systems. Sustainability indexes
> Eni’s
place on the Dow Jones Sustainability World Index was
confirmed for the ninth consecutive year. The index
features companies that distinguished by their excellent
performance in all the fields of sustainability.
Eni’s inclusion was also confirmed for the ninth
consecutive year on the FTSE4Good, one of the
world’s most prestigious corporate social
responsibility stock-market indexes. This reflects
Eni’s excellent performance in environmental
sustainability, respect for human rights, corporate
governance and transparency, relationships with
stakeholders. |
Contents |
Eni Integrated Annual Report |
|
11 | ||
Profile of the year |
| Financial highlights (*) | ||||||||||||||
| 2013 | 2014 | 2015 | ||||||||||||
| Continuing operations | ||||||||||||||
| Net sales from operations | (euro million) | 98,547 | 93,187 | 67,740 | ||||||||||
| Operating profit (loss) | 7,867 | 7,585 | (2,781 | ) | ||||||||||
| Adjusted operating profit (loss)on a standalone basis (b) | 13,136 | 11,442 | 4,104 | |||||||||||
| Net profit (loss) (a) | 3,472 | 101 | (7,680 | ) | ||||||||||
| Adjusted net profit (loss) on a standalone basis (a) (b) | 3,854 | 3,854 | 334 | |||||||||||
| Net profit (loss) - discontinued operations (a) | 1,688 | 1,190 | (1,103 | ) | ||||||||||
| Group net profit (loss) (a) - (continuing + discontinued operations) | 5,160 | 1,291 | (8,783 | ) | ||||||||||
| Comprehensive income (a) | 3,164 | 5,996 | (4,503 | ) | ||||||||||
n (a) Attributable to Eni’s shareholders. (b) Non-GAAP measures. This performance is measured by excluding gains and losses of the discontinued operations earned from both third parties and the Group’s continuing operations, determining the deconsolidation of Saipem and Versalis. (c) The amount of dividends for the year 2015 is based on the Board’s proposal. (d) Number of outstanding shares by reference price at year end. |
||||||||||||||
| Net cash flow from operating activities on a standalone basis (b) | 10,818 | 14,387 | 12,189 | |||||||||||
| Capital expenditure | 11,584 | 11,264 | 10,775 | |||||||||||
| of which: exploration | 1,669 | 1,398 | 820 | |||||||||||
| of which: development of hydrocarbon reserves | 8,580 | 9,021 | 9,341 | |||||||||||
| Dividends to Eni’s shareholders pertaining to the year (c) | 3,979 | 4,037 | 2,857 | |||||||||||
| Cash dividends to Eni’s shareholders | 3,949 | 4,006 | 3,457 | |||||||||||
| Total assets at year end | 138,341 | 146,207 | 134,792 | |||||||||||
| Shareholders’ equity including non-controlling interests at year end | 61,049 | 62,209 | 53,669 | |||||||||||
| Net borrowings at year end | 14,963 | 13,685 | 16,863 | |||||||||||
| Net capital employed at year end | 76,012 | 75,894 | 70,532 | |||||||||||
| of which: Exploration & Production | 45,699 | 47,629 | 50,522 | |||||||||||
| of which: Gas & Power | 8,462 | 9,031 | 5,803 | |||||||||||
| of which: Refining & Marketing | 8,737 | 6,738 | 5,492 | |||||||||||
| Share price at year end | (euro) | 17.5 | 14.5 | 13.8 | ||||||||||
| Weighted average number of shares outstanding | (million) | 3,622.8 | 3,610.4 | 3,601.1 | ||||||||||
| Market capitalization (d) | (euro billion) | 63 | 52 | 50 | ||||||||||
| Summary financial data | ||||||||||||||
| 2013 | 2014 | 2015 | ||||||||||||
| Net profit (loss) - continuing operations | n (a) Fully diluted. Ratio of net profit (loss)/cash flow and average number of shares outstanding in the period. Dollar amounts are converted on the basis of the average EUR/USD exchange rate quoted by ECB for the period presented. (b) One American Depositary Receipt (ADR) is equal to two Eni ordinary shares. (c) Ratio of dividend for the period and the average price of Eni shares as recorded in December. |
|||||||||||||
| - per share (a) | (euro) | 0.96 | 0.03 | (2.13 | ) | |||||||||
| - per ADR (a) (b) | ($) | 2.55 | 0.08 | (4.73 | ) | |||||||||
| Adjusted net profit (loss) - continuing operations | ||||||||||||||
| - per share (a) | (euro) | 0.69 | 0.61 | (0.19 | ) | |||||||||
| - per ADR (a) (b) | ($) | 1.83 | 1.62 | (0.42 | ) | |||||||||
| Cash flow - continuing operations | ||||||||||||||
| - per share (a) | (euro) | 3.20 | 3.65 | 3.10 | ||||||||||
| - per ADR (a) (b) | ($) | 8.49 | 9.69 | 6.89 | ||||||||||
| Adjusted return on average capital employed (ROACE) | (%) | 8.2 | 6.6 | 1.2 | ||||||||||
| Leverage | 0.25 | 0.22 | 0.31 | |||||||||||
| Current ratio | 1.5 | 1.5 | 1.4 | |||||||||||
| Debt coverage | 77.4 | 96.2 | 66.3 | |||||||||||
| Dividends pertaining to the year | (euro per share) | 1.10 | 1.12 | 0.80 | ||||||||||
| Pay-out | (%) | 80 | 313 | (33 | ) | |||||||||
| Dividend yield (c) | (%) | 6.5 | 7.6 | 5.7 | ||||||||||
Contents |
| 12 | Eni Integrated Annual Report |
|
||
Profile of the year |
| Operating and sustainability data (a) | ||||||||||||||
| 2013 | 2014 | 2015 | ||||||||||||
| Employees at year end | (number) | 30,970 | 29,403 | 29,053 | ||||||||||
| of which: - women (*) | 7,504 | 7,370 | 7,254 | |||||||||||
| of which: - outside Italy | 13,343 | 12,672 | 12,333 | |||||||||||
| Female managers (*) | (%) | 23.5 | 23.8 | 24.2 | ||||||||||
| Training hours | (thousand hours) | 1,493 | 1,032 | 915 | ||||||||||
| Employees injury frequency rate | (No. of accidents per million of worked hours) | 0.28 | 0.29 | 0.21 | ||||||||||
| Contractors injury frequency rate | 0.49 | 0.35 | 0.18 | |||||||||||
| Fatality index | (Fatal injuries per one hundred millions of worked hours) | 0.00 | 1.08 | 0.39 | ||||||||||
| Total recordable injury rate of workforce | (Total recordable injuries/ worked hours) x 1,000,000 | 0.75 | 0.62 | 0.40 | ||||||||||
| Oil spills due to operations | (barrels) | 1,762 | 1,161 | 1,603 | ||||||||||
| Direct GHG emissions | (mmtonnes CO2 eq) | 43.9 | 38.9 | 38.5 | ||||||||||
| R&D expenditure (b) | (euro million) | 142 | 134 | 139 | ||||||||||
| Expenditure for the territory (c) | 100 | 96 | 97 | |||||||||||
| Exploration & Production | ||||||||||||||
| Net proved reserves of hydrocarbon | (mmboe) | 6,535 | 6,602 | 6,890 | ||||||||||
| Average reserve life index | (years) | 11.1 | 11.3 | 10.7 | ||||||||||
| Hydrocarbon production | (kboe/d) | 1,619 | 1,598 | 1,760 | ||||||||||
| Profit per boe (d) (e) | ($/boe) | 16.1 | 13.8 | 7.4 | ||||||||||
| Opex per boe (d) | 8.3 | 8.4 | 7.2 | |||||||||||
| n (*) Do not include employees of equity accounted entities. (a) Pertaining to continuing operations. (b) Net of general and administrative costs. (c) Includes investments for local communities, charities, association fees, sponsorships, payments to Fondazione Eni Enrico Mattei and Eni Foundation. (d) Related to consolidated subsidiaries. (e) Three-year average. (f) The average evaluation reflects results of customers interviews based on clarity, courtesy and waiting time. |
Cash flow per boe | 31.9 | 30.1 | 20.1 | ||||||||||
| Finding & Development cost per boe (e) | 19.2 | 21.5 | 19.3 | |||||||||||
| Direct GHG emissions | (mmtonnes CO2 eq) | 27.4 | 23.4 | 22.8 | ||||||||||
| Produced water re-injected | (%) | 55 | 56 | 56 | ||||||||||
| Community investment | (euro million) | 53 | 63 | 71 | ||||||||||
| Gas & Power | ||||||||||||||
| Worldwide gas sales | (bcm) | 93.17 | 89.17 | 90.88 | ||||||||||
| - Italy | 35.86 | 34.04 | 38.44 | |||||||||||
| - outside Italy | 57.31 | 55.13 | 52.44 | |||||||||||
| Customers in Italy | (million) | 8.00 | 7.93 | 7.88 | ||||||||||
| Electricity sold | (TWh) | 35.05 | 33.58 | 34.88 | ||||||||||
| Water withdrawals per KWheq produced | (cm/kWheq) | 0.017 | 0.017 | 0.015 | ||||||||||
| Customer satisfaction rate (f) | (scale from 0 to 100) | 80.0 | 81.4 | 85.6 | ||||||||||
| Refining & Marketing | ||||||||||||||
| Refinery throughputs on own account | (mmtonnes) | 27.38 | 25.03 | 26.41 | ||||||||||
| Retail market share in Italy | (%) | 27.5 | 25.5 | 24.5 | ||||||||||
| Retail sales of refined products in Europe | (mmtonnes) | 9.69 | 9.21 | 8.89 | ||||||||||
| Service stations in Europe at year end | (number) | 6,386 | 6,220 | 5,846 | ||||||||||
| Average throughput of service stations in Europe | (kliters) | 1,828 | 1,725 | 1,754 | ||||||||||
| SOx emissions (sulphur oxide) | (ktonnes SO2 eq) | 10.80 | 5.70 | 5.97 | ||||||||||
| Customer satisfaction index | (likert scale) | 8.1 | 8.2 | 8.3 | ||||||||||
Contents
| Eni’s materiality definition process Materiality
is the result of the identification and prioritization of
the relevant sustainability issues that impact
significantly the company’s ability to create value. |
Contents
| 14 | Eni Integrated Annual Report |
|
||
Materiality and stakeholder engagement |
| Stakeholder engagement Eni believes that the participation and involvement of stakeholders in the business choices are the key elements which contribute to the development of the territories where Eni |
||||
| Stakeholder | Engagement procedures and actions | |||
| Eni’s people | Workshop (i.e. compliance and integrity projects to support the accordance of Eni’s activities to company’s values and culture); Strategy and annual performance sharing through the HR Ambassador Project and the Engagement Program; Communication plan through MyEni and MyEni International Portal; Brand activation initiatives; cascade e-mailing for topic business projects; Training programs and on-the-job training also through distance-learning methods; Welfare initiatives; Information campaign and health screening; Dialogue with the European Works Council (EWC) on Eni’s policies within the European framework and with the representatives of the European Observatory for Safety and Health at Work. | |||
| Financial community |
Conference call on quarterly results and strategy presentation; Road Shows with institutional investors in Europe, North America and Asia; Participation in brokers Conferences; Field-trip in Norway addressed to sell-side analysts; Engagement of main investors skilled on Environmental, Social and Governance (ESG) issues and engagement of investors as well as proxy advisors relating to Shareholders’ Meeting. | |||
| Local communities |
•
Issuing of the Operational Procedures for local
stakeholders management and collection and handling of
warnings, relating to Eni’s upstream structures in
the world. • Transposition of the Operational Procedures in 9 countries: Egypt, Ecuador, Italy (Northern-Center District, Enimed), Libya, Gabon, Ghana, Indonesia, Myanmar, Nigeria, for a total of 14 countries that have upgraded system for stakeholders management. • Activity of consultation of the local communities within the activities of livelihood restoration in Kazakhstan and Ghana. • Public consultations on business projects in Mozambique, Italy, Myanmar. • Multi-stakeholder committees for planning, management and implementation of social projects (i.e. sectorial committees in Pakistan, technical and management committees for the Hinda project in Congo, local committees in Ecuador and committee for the development of the Green River Project in Nigeria). • Workshop for the sharing of Local Report "Eni in Basilicata" with local stakeholders. |
|||
| Domestic institutions, European and international institutions, international organizations |
Information, awareness-raising and technical in-depth initiatives; Regular meetings with political and local, National, European institutional representatives and with the foreign diplomatic representations in Italy; Inspections and institutional visits at the production sites; Support in authorization procedures at national and local level; national, European and International meetings with representatives of public and private organisms and bodies and main think tanks; Active participation in service conferences, technical tables, political-institutional focus at local, national, European and international level, for energy and climatic issues; Meetings with the institutional delegations of the main countries during the Universal Exposition (Expo Milan 2015). |
Contents
Eni Integrated Annual Report |
|
15 | ||
Materiality and stakeholder engagement |
| operates; these factors, in fact, create mutual trust between the actors of the territory, promote consensus and strengthen Eni’s reputation as a reliable partner. |
| Stakeholder | Engagement procedures and actions | |||
| The United
Nations system |
Participation
in the main meetings between the United Nations and
companies (Private Sector Forum, Annual Forum on Business
and Human Rights, Lead Symposium); Participation in
Global Compact LEAD Board pilot program for the Board
training program on sustainability issues; Participation
in working groups on anti-corruption under the auspices of the Global Compact, on national and international level; Development of collaboration with World Bank/IFC; Participation in the Italy/UN "Ministerial Meeting of the African LDCs on Structural Transformation, Graduation and the Post-2015 Development Agenda" in Expo Milano 2015. |
|||
| National
and international NGOs |
Continuing dialogue with main Italian NGOs (WWF, Greenpeace, Legambiente) on oil&gas environmental issues; Dialogue with Amnesty International on the activities in Nigeria and the protection of Human Rights of populations living near the extraction sites. | |||
| Suppliers | Development of suppliers’ organizational, technical, quality, HSE and Human Rights skills during the rating process and assessments/audits carried out among the providers; Support on improvement following negative ratings resulting from audits; Verifying observance of Human Rights in the supply chain; Participation in Road Show in order to reinforce the dialogue with local suppliers about prevention issues and the sharing of Vendor Management processes; Participation in the Safety Day on HSE issues in Vendor Management processes; Memorandum of understanding to relaunch certain geographical areas; Focus on supply profiles in the field of Market Intelligence activities. | |||
| Customers and consumers |
Consolidation of the model for relations with Consumer Associations in order to enforce the attention on core issues: energy saving and sustainable value in our products and services (bio-fuels, smart mobility); Local meetings and workshops with members of Consumer Associations in order to plan remediation actions and synergy addressed the retail customers’ expectations, in the increasingly competitive gas and electricity market; Alignment of "Conciliazione paritetica" Model to European legislation; Development and reinforcement of telephone channel dedicated to Consumer Associations for a ready solution of criticalities about gas and electricity offer; Targeted activities addressed to the Consumer Associations to let them gradually use digital and social platforms. | |||
| Universities
and research centers |
Extension of the Framework Agreement with "Politecnico di Milano" signing a Memorandum of understanding between Eni and PoliMi; Definition of a new Agreement with "Politecnico di Torino"; Continuation of the collaboration agreement with the Massachusetts Institute of Technology on upstream, solar and HSE issues and with Stanford University on core oil&gas technologies and on environmental restoration. | |||
| Other sustainability organizations |
Participation, as founding member, in oil&gas Climate Initiative; Active role within the anti-corruption working group of the G20 ; Participation in the working groups of the WBCSD and IPIECA, the O&G constituency of EITI, the working group within the PACI. |
Contents
| Eni’s business model
targets long-term value creation for its stakeholders by
delivering on profitability and growth, efficiency and
operational excellence and handling operational risks of
its businesses, as well as environmental conservation,
and local communities relationships, preserving health
and safety of people working in Eni and with Eni, in
respect of human rights, ethics and transparency. The main capitals used by Eni (financial capital, productive capital, intellectual capital, natural capital, human capital, social and relationship capital) are classified in accordance with the criteria included in the "International IR Framework" published by the International Integrated Reporting Council (IIRC). Robust 2015 financial results |
and sustainability
performance, notwithstanding a weak scenario for
commodities prices, rely on the responsible and efficient
use of our capitals. Hereunder is articulated the map of the main capitals exploited by Eni and actions positively effecting on their quality and availability. At the same time, the scheme evidences how the efficient use of capitals and related connections create value for the company and its stakeholders. For detailed information on results associated to each capital and to the way by which each strategic target is achieved see this Integrated Annual Report and the Integrated Performance tables. |
Contents
Eni Integrated Annual Report |
|
17 | ||
Business model |
Contents
Contents
Eni Integrated Annual Report |
|
19 | ||
Targets and performance drivers |
| The table below shows how
actions taken in managing each main capital, contribute
to achieve business targets. The different actions are classified on the basis of four strategic targets which lead Eni’s business segments. The actions reported below represent the management system of each capital which allow to achieve business goals, on the one hand reducing risks, on the other, |
increasing profitability.
For further details on financial and non-financial
KPI’s see the Annex of Integrated performances. See the next page "connectivity of performances" for a deep focus on connections between upstream actions (first column of matrix), employed capitals and financial/non financial results reported in 2015. |
Contents
| The following cause-effect
map graphically shows the connections/effects of specific
actions taken in the upstream business, in line with the
main strategic guidelines defined by management in
response to deteriorated oil scenario. The connections between each action which affects the conduct of business and produces financial results, |
generating value for stakeholders, are graphically illustrated below. In particular are highlighted one or more correlations between non-financial and financial results, as well as the main risks managed. The efficient use of capital, financial and non-financial, contributes to the value generation and the achievement of the market declared targets. |
Contents
| Industrial plan Starting from the second part of 2015, the oil price reported a significant contraction, falling below 30 $/bl in January 2016. In the 2016-2019 plan period, the oil price is expected to rise gradually to 65 $/bl by 2019 following progressive rebalancing of the market. In such context, the strategy was defined taking into account three different time horizons: - The short-term, by pursuing cash flow maximization to safeguard financial robustness while raising efficiency and accelerating initiatives aimed at cost reduction; - The medium-term, by means of the focus on investments aimed to develop the significant resources in the portfolio, characterized by low break even, as to guarantee the reserves’ replacement and production growth; - The long-term, by creating the basis for the society to get ready for the low-carbon energy environment. In the short and medium term, the main goal of cash generation will be pursued by means of specific industrial initiatives in Eni’s businesses, selective investments mainly in the Exploration & Production segment and further initiatives of costs reduction. In particular, the definition of the capex plan leveraged on the high-value projects with accelerated rates of return: in the 2016-2019 plan, capital expenditure plan of euro 37 billion is 21% lower compared to the previous plan, at constant foreign exchange rate. The reduction is mainly due to the Exploration & Production segment, in spite of the additional spending for the Shorouk discovery (Egypt) while benefiting from projects’ rephasing/reconfiguration and contracts’ renegotiations. The 2016-2019 divestment plan amounts to approximately euro 7 billion, before taxation and excluding Saipem transaction, stemming from anticipated monetization of exploratory discoveries as well as further refocusing of activities on the core business. The combined effect of the industrial actions for the development of the Exploration & Production segment, restructuring of the mid and downstream businesses and widespread initiatives of spending review will allow to reduce significantly the Brent break-even level with a cash neutrality (including dividend floor) at 60 $/bl by 2017. Dividend policy |
 |
||||||||
 |
Fuelling value and increase of explorative resources | ||||||||
| n | Production growth in the four-year plan 2016-19, at an annual average rate higher than 3%, maintaining a great portion of projects in core areas, also leveraging on negotiations with NOCs and strict control of non-operated activities; | ||||||||
| n | Efficiency increase through a wide range of actions aimed to reduce G&A, drilling and operating costs, pursued also through the renegotiation of supply contracts following the deteriorated scenario; | ||||||||
| n | Focusing on working capital through the optimization of third-party and JV receivables and minimization of stock; | ||||||||
| n | Selective investments to optimize/reduce expenditures in a low Brent price scenario; | ||||||||
| n | In exploration, focus on appraisal of recent discoveries, near-field activities in legacy areas and in proximity to on-stream fields as well as, on research of new gas resources in Countries with favorable contractual conditions and more mature sales markets; | ||||||||
| n | Carbon footprint reduction leveraging on gas issues and development of renewable sources; | ||||||||
| n | Valorization of resources through monetization of discoveries with relevant equity; | ||||||||
| n | Fast track development of discovered resources, through the optimization of the time-to-market and modular approach on project development. | ||||||||
 |
|||||||||
 |
Profitability and sustainable cash generation | ||||||||
| n | Full alignment of supply portfolio to market conditions and recovery of take-or-pay volumes; | ||||||||
| n | Recovery of profitability/optimization of B2B contracts; | ||||||||
| n | Simplification of operations and logistic cost optimization; | ||||||||
| n | Development of trading activities and support of monetization of recent upstream discoveries; | ||||||||
| n | Enhancement of customer base. | ||||||||
 |
|||||||||
 |
EBIT adjusted and free cash flow steadily positive | ||||||||
| n | Progressive reduction of break-even refining margin through: | ||||||||
| n | Increasing of conversion capacity (EST technology); | ||||||||
| n | Reconversion of Venice and Gela plants to green refineries in order to produce premium biofuels; | ||||||||
| n | Productive asset optimization and efficiency; | ||||||||
| n | Raw materials diversification and higher utilization of extra-heavy crude oil; | ||||||||
| n | Increasing of marketing profitability through diversification of supply, product and service innovation, efficiency in commercial and distribution processes. | ||||||||
Contents
Contents
Eni Integrated Annual Report |
|
23 | ||
Competitive environment |
Contents
| n (1) Potential events that can affect Eni’s activities and whose occurrence could hamper the achievement of the main corporate objectives.
|
Eni has developed and
adopted a model for Integrated Risk Management (IRM) that
targets to achieve an organic and comprehensive view of
the Company’s main risks1, greater
consistency among internally-developed methodologies and
tools to manage risks and a strengthening of the
organization awareness, at any level, that suitable risk
evaluation and mitigation may influence the delivery of
Corporate targets and value. Integrated Risk Management Model The IRM Model has been defined and updated consistently with international principles and best practices. It is an integral part of the Internal Control and Risk Management System (see page 31) and is structured on three control levels.
|
Contents
Eni Integrated Annual Report |
25 | |||
Risk management |
| Risk governance attributes a
central role to the Board of Directors which, with the
support of the Control and Risk Committee outlines the
guidelines for risk management, so as to ensure that the
main corporate risks are properly identified and
adequately assessed, managed and monitored. In addition, the Eni Board of Directors, in fulfilling its responsibilities and its role of direction and with the support of the Control and Risk Committee, defines the degree of compatibility of these risks with the company management consistent with its strategic targets. For this purpose, Eni’s CEO, through the process of integrated risk management, presents every three months a review of the Eni’s main risks to the Board of Directors. The analysis is based on the scope of the work and risks specific of each business area and processes aiming at defining an integrated risk management policy; the CEO also ensures the evolution of the IRM process consistently with business dynamics and the regulatory environment. Furthermore, the Risk Committee, chaired by the CEO, holds the role of consulting body for the latter with regards to major risks. For this purpose, the Risk Committee evaluates and expresses opinions, at the instance of CEO, related to the main results of the integrated risk management process. Integrated Risk Management process The IRM Model is implemented through a process of
integrated management which is both continuous and
dynamic and leverages on the risk management systems
already adopted by each business unit and corporate
processes, promoting harmonization with methodologies and
specific tools of the IRM model. |
Contents
| 26 | Eni Integrated Annual Report |
|
||
Risk management |
Contents
Eni Integrated Annual Report |
|
27 | ||
Risk management |
Contents
| n (1) For more detailed information on the Eni Corporate Governance system, please see the Report on corporate governance and ownership structure, which is published on the Company’s website in the Governance section. (2) Independence as defined by applicable law, to which the Eni By-laws refer. Under the Corporate Governance Code, 6 of the 9 serving directors are independent. (3) Under law and the Corporate Governance Code, the number of independent directors was unchanged even after the appointment by the Board of a director on July 29, 2015, in replacement of a resigning director appointed by the Shareholders’ Meeting (see the chart at the end of the section). |
Integrity and transparency
are the principles that have inspired Eni in designing
its corporate governance system1, a key pillar
of the Company’s business model. The governance
system, flanking our business strategy, is intended to
support the relationship of trust between Eni and its
stakeholders and to help achieve our business goals,
creating sustainable value for the long-term. Eni is committed to building a corporate governance system founded on excellence in our open dialogue with the market and all our stakeholders. Ongoing, transparent communication with stakeholders is an essential tool for better understanding their needs. It is part of our efforts to ensure the effective exercise of shareholder rights. With this in mind, in continuity with previous initiatives in 2013-2014, Eni has responded to the need for a deeper dialogue with the market and, with the participation of the Chairman of the Board of Directors, held a new cycle of meetings with institutional investors to foster a comprehensive understanding of the Company’s governance system and main initiatives in the fields of sustainability and corporate social responsibility. The initiative was welcomed by the investors, who confirmed that Eni’s corporate governance is very well structured and among the most effective. In particular, the investors expressed their appreciation of the composition of the Board of Directors, including its diversity, the governance measures adopted (e.g. the establishment of the Sustainability and Scenarios Committee and the induction process and on-going training) and the completeness and transparency of the information provided to shareholders and the market as a whole. In addition, during the meetings the investors displayed considerable interest in the risk governance approach adopted by Eni and the extent of the associated monitoring performed by the Board. In its corporate and governance decisions, such as the adoption of the recommendations of the Corporate Governance Code of Italian listed companies, the Eni Board of Directors ensures the transparency of its actions to the market, which must be explained and documented in a timely manner to enable easy comprehension and evaluation. The Eni Corporate Governance structure Eni’s Corporate Governance structure is based on
the traditional Italian model, which – without
prejudice to the role of the Shareholders’ Meeting
– assigns the management of the Company to the Board
of Directors, supervisory functions to the Board of
Statutory Auditors and statutory auditing to the Audit
Firm. |
Contents
Eni Integrated Annual Report |
|
29 | ||
Governance |
| with advisory and
recommendation functions: the Control and Risk Committee4,
the Compensation Committee5, the Nomination
Committee and the Sustainability and Scenarios Committee.
The committees report, through their Chairmen, on the
main issues they address at each meeting of the Board of
Directors. More specifically, the Board of Directors
created the Sustainability and Scenarios Committee to
strengthen the attention devoted to sustainability
issues. The Board of Directors has also given the Chairman a major role in internal controls, with specific regard to the Internal Audit unit. The Chairman proposes the appointment and remuneration of its head and the resources available to it, and also directly manages relations with the unit on behalf of the Board of Directors (without prejudice to the unit’s functional reporting to the Control and Risk Committee and the Chief Executive Officer, as the director responsible for the internal control and risk management system). The Chairman is also involved in the appointment of the primary Eni officers responsible for internal controls and risk management, including the Head of Integrated Risk Management, as described in the next section. Finally, the Board of Directors, acting on a recommendation of the Chairman, appointed a Secretary, who was also designated the Corporate Governance Counsel, charged with providing assistance and advice to the Board of Directors and the directors, reporting annually to the Board of Directors on the functioning of Eni’s corporate governance system. In view of this role, the Secretary must also meet appropriate independence requirements and reports to the Board of Directors itself and, on its behalf, to the Chairman. The following chart summarizes the Company’s corporate governance structure at December 31, 2015: |
n (4) As regards the composition of the Control and Risk Committee, Eni requires that at least two members shall have appropriate experience with accounting, financial or risk management issues, exceeding the requirements of the Corporate Governance Code, which recommends only one such member. (5) The rules of the Compensation Committee require that at least one member shall have adequate expertise and experience in finance or compensation policies. These qualifications are assessed by the Board of Directors at the time of appointment. |
Contents
| 30 | Eni Integrated Annual Report |
|
||
Governance |
| n (6) More specifically, the Board of Directors has reserved for itself decisions concerning the establishment of sustainability policies, the results of which are reported together with financial results in an integrated manner in the Annual Report, as well as the examination and approval of reports covering areas not included in the integrated reporting framework. (7) Eni is a member of the UN Global Compact Lead Group. |
Decision making The Board of
Directors entrusts the management of the Company to the
Chief Executive Officer, while retaining key strategic,
operational and organizational powers for itself,
especially as regards governance, sustainability6,
internal control and risk management. Remuneration Policy Eni’s Remuneration Policy for its Directors and top management is established in accordance with the Governance model adopted by the Company and the recommendations of the Corporate Governance Code. The Policy seeks to retain with high-level professionals |
Contents
Eni Integrated Annual Report |
|
31 | ||
Governance |
| and skilled
managers and to align the interests of management with
the priority objective of creating value for shareholders
over the medium/long-term. For this purpose, the
remuneration of Eni’s top management is established
on the basis of the position and the responsibilities
assigned, with due consideration given to market
benchmarks for similar positions in companies similar to
Eni in dimension and complexity. Remuneration is composed
of a balanced mix of fixed and variable elements. Under
Eni Remuneration Policy, considerable importance is given
to the variable component, which is linked to the
achievement of preset performance and financial targets,
business development and operational objectives, also
considering the long-term sustainability of the results,
in line with the Company’s Strategic Plan. The internal control and risk management system Eni has adopted an integrated and comprehensive
internal control and risk management system based on
reporting tools and flows that, involving all Eni
personnel, reach all the way up to the top management of
the Company and its subsidiaries. The members of the
Board, as well as the members of the other corporate
bodies and all Eni personnel, are required to comply with
Eni’s Code of Ethics (as an essential part of the
Company’s Model 231), which sets out the rules of
conduct for the fair and proper management of the
Company’s business. |
 |
|
| n (8) In particular, in 2015, 93.4% of voting shareholders, expressed a favorable vote on Eni’s remuneration policies, this confirming the large consent registered in 2014. |
Contents
Performance of the year
| n |
> In 2015, safety performance continued on a positive trend, reporting a further improvement in injury frequency rate of total workforce (down by 44%). Eni is engaged in maintaining a high safety standard in each of its operations leveraging also on continuous HSE awareness programs.
> Greenhouse gas emissions decreased by 2.8% compared to the previous year (with a -3.9% reduction in emissions from flaring). Continuous improvements in energy efficiency, streamline logistics and emissions reduction more than offset the hydrocarbon production growth (performance indicator CO2 eq emissions/hydrocarbons production down by 9.1% from 2014). In the year, the flaring down project of the M’Boundi field (Eni operator with an 83% interest), started up in 2014, received the Excellence award of World Bank Global Gas Flaring Reduction within Zero Routine Gas Flaring 2030 program due to significant emissions reduction.
> Water reinjection continues to achieve an excellent industry performance (56% in 2015) and we recorded zero blow-outs for the twelfth consecutive year.
> In 2015, the E&P segment reported a decline of euro 3,671 million, or 83% in adjusted net profit compared to a year ago, due to lower realization on commodities in dollar terms (down by 44.3% on average) reflecting the fall of Brent crude benchmark and the weakness of gas markets in Europe and in the United States.
>Oil and natural gas production was 1.760 million boe/d in 2015, up by 10.1% compared to the previous year and to a 5% target, the highest increase rate since 2001. Production ramp-up at fields started in the year will add approximately 200 kboe/d in 2016.
> Estimated net proved reserves at December 31, 2015 amounted to 6.9 bboe based on a reference Brent price of $54 per barrel. The organic reserves replacement ratio was 148% (135% on average since 2010). The reserves life index was 10.7 years (11.3 years in 2014).
Exploration activity
| n |
> Additions to the Company’s reserve backlog were approximately 1.4 billion boe of resources, at a competitive cost of $0.7 per barrel (compared to a target of 500 million boe at a cost not higher than $2 per boe), particularly near-field discoveries with quick time-to-market and immediate cash flow and appraisal campaign of recent discoveries to support production level. The main discoveries were made:
Contents
Eni Integrated Annual Report |
|
33 | ||
Operating review Exploration & Production |
- Egypt, with a world-class gas discovery at the Zohr
exploration prospect (Eni’s interest 100%) in the deep
waters of the Mediterranean Sea. This field is estimated to
retain 30 trillion cubic feet of gas in place and an accelerated
fast track development leveraging on the existing offshore and
onshore facilities is planned. In February 2016, Egyptian
authorities approved the development plan of the Zohr discovery.
First gas is expected in 2017;
- Congo, where the exploration activities of the pre-salt
sequences in the Marine XII block (Eni operator with a 65%
interest) continue to deliver new discoveries and confirm
Eni’s exploration technologies effectiveness, given the
technical complexity of these plays. Eni estimates the oil and
gas resources in place of the Marine XII block at approximately
5.8 billion boe. The production of the block currently flows at
approximately 15 kboe/d;
- Libya, with gas and condensates discoveries in the contractual
area D (Eni’s interest 50%);
- Other exploration successes were made in Egypt, Pakistan,
Indonesia and the United States.
> In Angola, signed a three-year extension of the exploration period of the operated Block 15/06 (Eni’s interest 36.84%), where the first oil from the West Hub development project was achieved at the end of 2014.
> In March 2016, Eni signed a Farm-Out Agreement (FOA) with Chariot oil&gas that includes the operatorship to Eni and a 40% stake enter into Rabat Deep Offshore exploration permits I-VI offshore Morocco. The completion of this FOA is subject to the authorization of the Moroccan authorities, to current partners’ approval and other conditions precedent.
> Entrance into the upstream sector of Mexico by signing the Production Sharing Contract as operator of the Block 1 (Eni’s interest 100%) to develop the Amoca, Miztón and Tecoalli fields. These fields located in the Gulf of Mexico shallow waters are estimated to retain 800 million barrels of oil and 480 billion cubic feet of gas in place. The delineation campaign of the fields was submitted to the Mexican authorities in the first quarter of 2016 and plans the drilling of four wells in order to define a fast track and synergic development plan.
> Signed a preliminary agreement with KazMunayGas to acquire 50% of the mineral rights in the Isatay block in the Caspian Sea.
> The exploration portfolio was renewed by means of new exploration acreage covering approximately 21,500 square kilometers net to Eni in particular in Egypt, Myanmar, the United Kingdom and Ivory Coast as well as Mexico, as mentioned above.
> In 2015, exploration expenditure
amounted to euro 820 million, mainly related to the completion of
the 29 new exploratory wells (19.1 net to Eni). An overall
commercial success rate was 16.7% (25.1% net to Eni). In
addition, 80 exploratory drilled wells are in progress at year
end (41.6 net to Eni).
Sustainability and portfolio developments
| n |
> As planned, in 2015, Eni achieved
the start-up of 10 major new fields with 139 kboe/d of new
production, of which the most significant were:
- the giant Perla gas field (Eni’s interest 50%) offshore
Venezuela, retaining a potential of up to 17 Tcf of gas in place
(or 3.1 billion boe). A production plateau of approximately 1,200
mmcf/d is expected by 2020. Gas is sold to the national oil and
gas company PDVSA under a Gas Sales Agreement running until 2036;
- the Cinguvu field, part of the West Hub Development phased
project in Block 15/06 offshore Angola. In addition, early in
2016 the third M’Pungi satellite field came on stream
achieving an overall plateau of 25 kbbl/d net to Eni;
- the Nené Marine and Litchendjili fields in the block Marine
XII (Eni operator with a 65% interest) in Congo. The overall
production plateau is estimated in 40 kboe/d for the next
four-years;
- the Kizomba satellites Phase 2 project (Eni’s interest
20%) off Angola, with a peak production estimated in
approximately 70 kboe/d;
- the Hadrian South (Eni’s interest 30%) and Lucius
(Eni’s interest 8.5%) fields in the Gulf of Mexico, with an
overall production of 23 kboe/d;
- other main projects started up in Egypt, the United Kingdom,
Norway, the United States and Italy.
> In Mozambique, following the signing of the Unitization and Unit Operating Agreement (UUOA) and in full agreement with all the concessionaries of the projects, a unitization was set out for the development of the natural gas reservoirs straddling Areas 4 (operated by Eni) and 1 (operated by Anadarko) in the Rovuma Basin, offshore Mozambique. In accordance with the UUOA, the development of the straddling reservoirs will be carried out at an early stage in a separated but coordinated way by the two operators, until 24 Tcf of natural gas reserves are developed (12 Tcf of natural gas from each Area). Future developments will be jointly pursued by Area 4 and Area 1 concessionaires. The Final Investment Decision relating the Mamba field in Eni’s operating Area is expected in 2017.
> Finalized a strategic oil agreement in Egypt, which provides investment of up to $5 billion (at 100%) to develop the Country’s oil and gas reserves in future years. Eni has also agreed on new terms for ongoing oil contracts, with the economic effects retroactive to January 1, 2015. Set new measures to reduce overdue amounts of trade receivables relating to hydrocarbon supplies to Egyptian state-owned companies.
> In February 2016, Mozambique authorities approved the development of the first development phase of Coral (Eni operator with a 50% interest), targeting to put into production 5 trillion cubic feet of gas.
> Signed an agreement to supply 1.4 mmtonnes/y of LNG from the Eni-operated Jangkrik field (Eni’s interest 55%) to the Indonesian state-run company PT Pertamina, effective in 2017. The agreement will support the development of the Jangkrik field.
Contents
| 34 | Eni Integrated Annual Report |
|
||
Exploration & Production Operating review |
> In Ghana, Eni sanctioned the final investment decision for the integrated OCTP oil and gas project (Eni operator with a 47.22% interest). The first oil is expected in 2017.
> In March 2016, production started up at the Goliat oilfield (Eni operator with a 65% interest) in the Barents Sea, in Norway. Production is expected to achieve 65 kbbl/d net to Eni.
> The Project Integrée Hinda (PIH) in the M’Boundi area in Congo involved approximately 25,000 people in the five-year 2011-2015 period with specific programs and in collaboration with local Authorities, to improve education, health, agriculture and access to water.
> The business sustainability in the medium to long-term remains a key factor in the growth strategy of upstream sector with initiatives to support the local development always more integrated into business activities. In particular, during the year projects in Ghana and Mozambique started with initiatives to improve health, access to clean water, education and training; the initiatives in Nigeria, Iraq and Indonesia continue.
> Development expenditure was euro 9,341 million (down by 12% net of exchange rate effects) to fuel the growth of major projects and to maintain production plateau particularly in Angola, Norway, Egypt, Kazakhstan, Congo, Indonesia, Italy and the United Sates.
> In 2015, overall R&D expenditure of the Exploration & Production segment amounted to euro 78 million (euro 83 million in 2014).
| Strategy Upstream
growth model will continue to focus on conventional
assets, which will be organically developed, with a large
resource base and a competitive cost structure, which
make them profitable even in a low price environment. |
Contents
Eni Integrated Annual Report |
|
35 | ||
Operating review Exploration & Production |
| Reserves Overview Reserves Governance |
The process for estimating
reserves, as described in the internal procedure,
involves the following roles and responsibilities: (i)
the business unit managers (geographic units) and Local
Reserves Evaluators (LRE) are in charge with estimating
and classifying gross reserves including assessing
production profiles, capital expenditure, operating
expenses and costs related to asset retirement
obligations; (ii) the petroleum engineering department at
the head office verifies the production profiles of such
properties where significant changes have occurred; (iii)
geographic area managers verify the commercial conditions
and the progress of the projects; (iv) the Planning and
Control Department provides the economic evaluation of
reserves; (v) the Reserves Department, through the
Headquarter Reserves Evaluators (HRE), provides
independent reviews of fairness and correctness of
classifications carried out by the above mentioned units
and aggregates worldwide reserves data. The head of the Reserves Department attended the "Università degli Studi di Milano" and received a Master of Science degree in Physics in 1988. He has more than 25 years of experience in the oil and gas industry and more than 15 years of experience in evaluating reserves. Staff involved in the reserves evaluation process fulfils the professional qualifications requested and maintains the highest level of independence, objectivity and confidentiality in accordance with professional ethics. Reserves Evaluators qualifications comply with international standards defined by the Society of Petroleum Engineers. Reserves
independent evaluation |
(1) The reports of independent engineers are
available on Eni website eni.com section Publications/Annual
Report 2009.
(2) From 1991 to 2002, DeGolyer and MacNaughton; from 2003, also
Ryder Scott and in 2015, also Gaffney, Cline & Associates.
(3) The reports of independent engineers are available on Eni
website eni.com section Publications/Annual Report 2015.
(4) Includes Eni’s share of proved reserves of equity
accounted entities.
Contents
| 36 | Eni Integrated Annual Report |
|
||
Exploration & Production Operating review |
| Movements
in estimated net proved reserves Eni’s estimated proved reserves were determined taking into account Eni’s share of proved reserves of equity-accounted entities. |
Movements in Eni’s 2015 estimated proved reserves were as follows: |
| (mmboe) | Consolidated subsidiaries | Equity-accounted entities | Total | ||||
| Estimated net proved reserves at December 31, 2014 | 5,772 | 830 | 6,602 | ||||||||||||||
| Extensions, discoveries, revisions of previous estimates and improved recovery excluding price effect | 571 | 98 | 669 | ||||||||||||||
| Price effect | 278 | 278 | |||||||||||||||
| Reserve additions, total | 849 | 98 | 947 | ||||||||||||||
| Sales of minerals-in-place | (17 | ) | (17 | ) | |||||||||||||
| Production of the year | (629 | ) | (13 | ) | (642 | ) | |||||||||||
| Estimated net proved reserves at December 31, 2015 | 5,975 | 915 | 6,890 | ||||||||||||||
| Reserves replacement ratio, organic | (%) | 148 | |||||||||||||||
| Additions to proved reserves
booked in 2015 were 947 mmboe and derived from: (i)
revisions of previous estimates were up by 879 mmboe
mainly reported in Kazakhstan, Iraq, Egypt, Congo and
Venezuela; (ii) extensions and discoveries were up by 66
mmboe, with major increases booked in Egypt and
Indonesia; (iii) improved recovery were 2 mmboe mainly
reported in Egypt. These increases compared to production
of the year yielded an organic reserves replacement ratio5
of 148%. All sources additions were impacted by favorable price effect, leading to an upward revision of 278 mmboe, due to a lowered Brent price used in the reserves estimation process down to $54 per barrel in 2015 compared to $101 per barrel in 2014. Sales of mineral-in-place mainly related to the divestment of assets in Nigeria (down by 16 mmboe) and the United States (down by 1 mmboe). In 2015, Eni achieved an all sources reserves replacement ratio of 145%. Reserves life index was 10.7 years (11.3 years in 2014). Proved undeveloped
reserves |
Most proved undeveloped
reserves are converted to proved developed reserves
within five years. Reserves that remain proved
undeveloped for five or more years are a result of
several factors that affect the timing of the projects
development and execution, such as the complex nature of
the development project in adverse and remote locations,
physical limitations of infrastructures or plant capacity
and contractual limitations that establish production
levels. The Company estimates that approximately 0.8 bboe
of proved undeveloped reserves have remained undeveloped
for five years or more with respect to the balance sheet
date, mainly related to: (i) the Kashagan project in
Kazakhstan (approximately 0.5 bboe), which will be
progressively reclassified to proved developed reserves
as a result of hooking-up new producing wells which are
currently being completed and plant capacity expansion as
a part of the sanctioned Phase 1 of the global
development plan of the Kashagan field; (ii) certain
Libyan gas fields (0.2 bboe) where development completion
and production start-ups are planned according to the
delivery obligations set forth in a long-term gas supply
agreement currently in force; and (iii) other minor
projects where development activities are progressing. Delivery commitments Eni, through consolidated subsidiaries and equity-accounted entities, sells crude oil and natural gas from its producing operations under a variety of contractual obligations. Some of these contracts, mostly relating to natural gas, specify the delivery of fixed and determinable quantities. Eni is contractually committed under existing contracts or agreements to deliver in the next three years mainly natural gas to third parties for a total of approximately 479 mmboe from producing assets located mainly in Algeria, Australia, Egypt, Libya, Nigeria, Norway and Venezuela. The sales contracts contain a mix of fixed and variable pricing formulas that are generally referenced to the market price for crude oil, natural gas or other petroleum products. Management believes it can satisfy these contracts from quantities available from production of the Company’s proved developed reserves and supplies from third parties based on existing contracts. Production will account for approximately 86% of delivery commitments. Eni has met all contractual delivery commitments as of December 31, 2015. |
(5) Organic ratio of changes in proved reserves for the year resulting from revisions of previously reported reserves, improved recovery, extensions and discoveries, to production for the year. All sources ratio includes sales or purchases of minerals in place. A ratio higher than 100% indicates that more proved reserves were added than produced in a year. The Reserves Replacement Ratio is not an indicator of future production because the ultimate development and production of reserves is subject to a number of risks and uncertainties. These include the risks associated with the successful completion of large-scale projects, including addressing ongoing regulatory issues and completion of infrastructure, as well as changes in oil and gas prices, political risks and geological and environmental risks.
Contents
Eni Integrated Annual Report |
|
37 | ||
Operating review Exploration & Production |
| Estimated net proved hydrocarbons reserves |
| Liquids (mmbbl) | Natural gas (bcf) | Hydrocarbons (mmboe) | Liquids (mmbbl) | Natural gas (bcf) | Hydrocarbons (mmboe) | Liquids (mmbbl) | Natural gas (bcf) | Hydrocarbons (mmboe) |
| Consolidated subsidiaries | 2013 | 2014 | 2015 | |||
| Italy | 220 | 1,532 | 499 | 243 | 1,432 | 503 | 228 | 1,304 | 465 | |||||||||||
| Developed | 177 | 1,266 | 408 | 184 | 1,192 | 401 | 171 | 1,051 | 362 | |||||||||||
| Undeveloped | 43 | 266 | 91 | 59 | 240 | 102 | 57 | 253 | 103 | |||||||||||
| Rest of Europe | 330 | 1,247 | 557 | 331 | 1,171 | 544 | 305 | 1,044 | 495 | |||||||||||
| Developed | 179 | 904 | 343 | 174 | 887 | 335 | 237 | 919 | 404 | |||||||||||
| Undeveloped | 151 | 343 | 214 | 157 | 284 | 209 | 68 | 125 | 91 | |||||||||||
| North Africa | 830 | 5,231 | 1,783 | 776 | 5,291 | 1,740 | 821 | 4,798 | 1,694 | |||||||||||
| Developed | 561 | 2,432 | 1,003 | 521 | 2,110 | 904 | 542 | 2,566 | 1,010 | |||||||||||
| Undeveloped | 269 | 2,799 | 780 | 255 | 3,181 | 836 | 279 | 2,232 | 684 | |||||||||||
| Sub-Saharan Africa | 723 | 2,374 | 1,155 | 739 | 2,744 | 1,239 | 787 | 2,714 | 1,282 | |||||||||||
| Developed | 465 | 1,295 | 701 | 470 | 1,271 | 702 | 511 | 1,390 | 764 | |||||||||||
| Undeveloped | 258 | 1,079 | 454 | 269 | 1,473 | 537 | 276 | 1,324 | 518 | |||||||||||
| Kazakhstan | 679 | 1,957 | 1,035 | 697 | 2,049 | 1,069 | 771 | 2,354 | 1,198 | |||||||||||
| Developed | 295 | 1,488 | 566 | 306 | 1,553 | 589 | 355 | 1,830 | 689 | |||||||||||
| Undeveloped | 384 | 469 | 469 | 391 | 496 | 480 | 416 | 524 | 509 | |||||||||||
| Rest of Asia | 128 | 744 | 263 | 131 | 846 | 285 | 262 | 878 | 422 | |||||||||||
| Developed | 38 | 286 | 90 | 64 | 261 | 112 | 126 | 185 | 159 | |||||||||||
| Undeveloped | 90 | 458 | 173 | 67 | 585 | 173 | 136 | 693 | 263 | |||||||||||
| Americas | 147 | 509 | 240 | 147 | 468 | 232 | 189 | 439 | 269 | |||||||||||
| Developed | 96 | 310 | 153 | 116 | 393 | 188 | 149 | 373 | 217 | |||||||||||
| Undeveloped | 51 | 199 | 87 | 31 | 75 | 44 | 40 | 66 | 52 | |||||||||||
| Australia and Oceania | 22 | 848 | 176 | 13 | 807 | 160 | 9 | 771 | 150 | |||||||||||
| Developed | 20 | 561 | 123 | 12 | 675 | 135 | 9 | 585 | 115 | |||||||||||
| Undeveloped | 2 | 287 | 53 | 1 | 132 | 25 | 186 | 35 | ||||||||||||
| Total consolidated subsidiaries | 3,079 | 14,442 | 5,708 | 3,077 | 14,808 | 5,772 | 3,372 | 14,302 | 5,975 | |||||||||||
| Developed | 1,831 | 8,542 | 3,387 | 1,847 | 8,342 | 3,366 | 2,100 | 8,899 | 3,720 | |||||||||||
| Undeveloped | 1,248 | 5,900 | 2,321 | 1,230 | 6,466 | 2,406 | 1,272 | 5,403 | 2,255 | |||||||||||
| Equity-accounted entities | ||||||||||||||||||||
| North Africa | 16 | 15 | 19 | 14 | 15 | 16 | 13 | 13 | 14 | |||||||||||
| Developed | 16 | 15 | 19 | 13 | 15 | 15 | 13 | 13 | 14 | |||||||||||
| Undeveloped | 1 | 1 | ||||||||||||||||||
| Sub-Saharan Africa | 15 | 330 | 75 | 17 | 351 | 81 | 16 | 387 | 87 | |||||||||||
| Developed | 7 | 89 | 23 | 6 | 85 | 22 | ||||||||||||||
| Undeveloped | 15 | 330 | 75 | 10 | 262 | 58 | 10 | 302 | 65 | |||||||||||
| Rest of Asia | 1 | 28 | 7 | 1 | 18 | 5 | 12 | 4 | ||||||||||||
| Developed | 14 | 3 | 10 | 3 | 9 | 2 | ||||||||||||||
| Undeveloped | 1 | 14 | 4 | 1 | 8 | 2 | 3 | 2 | ||||||||||||
| Americas | 116 | 3,353 | 726 | 117 | 3,353 | 728 | 158 | 3,581 | 810 | |||||||||||
| Developed | 19 | 5 | 18 | 26 | 6 | 26 | 29 | 1,295 | 265 | |||||||||||
| Undeveloped | 97 | 3,348 | 708 | 91 | 3,347 | 702 | 129 | 2,286 | 545 | |||||||||||
| Total equity-accounted entities | 148 | 3,726 | 827 | 149 | 3,737 | 830 | 187 | 3,993 | 915 | |||||||||||
| Developed | 35 | 34 | 40 | 46 | 120 | 67 | 48 | 1,402 | 303 | |||||||||||
| Undeveloped | 113 | 3,692 | 787 | 103 | 3,617 | 763 | 139 | 2,591 | 612 | |||||||||||
| Total including equity-accounted entities | 3,227 | 18,168 | 6,535 | 3,226 | 18,545 | 6,602 | 3,559 | 18,295 | 6,890 | |||||||||||
| Developed | 1,866 | 8,576 | 3,427 | 1,893 | 8,462 | 3,433 | 2,148 | 10,301 | 4,023 | |||||||||||
| Undeveloped | 1,361 | 9,592 | 3,108 | 1,333 | 10,083 | 3,169 | 1,411 | 7,994 | 2,867 | |||||||||||
Contents
| 38 | Eni Integrated Annual Report |
|
||
Exploration & Production Operating review |
Oil and natural gas production
| In 2015, Eni’s
hydrocarbon production was 1.760 million boe/d, up by
10.1% from 2014. Excluding the price effects reported in
Production Sharing Agreements, production increased by
6.3%. The increase was driven by new field start-ups and
the continuing ramp-up of production at fields started in
2014, mainly in Angola, Venezuela, the United States and
the United Kingdom, higher production in Libya and Iraq
as well as the recovery of trade receivables for past
investments in Iran. These positive effects were partly
offset by the decline of mature fields. New field
start-ups and ramp-ups of production added an estimated
139 kboe/d of new production. The share of oil and
natural gas produced outside Italy was 90% (compared to
89% in the corresponding period a year ago). Liquids production (908 kbbl/d) increased by 80 kbbl/d, or 9.7%, due to higher production in Libya, Iran and Iraq as well as new fields start-ups and ramp-ups in particular in Angola, the United States and Norway. Natural gas production (4,681 mmcf/d) increased by 457 mmcf/d, or 10.8% from 2014. The start-ups in Venezuela, |
the United Kingdom, Egypt
and the United States, as well as higher production in
Libya more than offset the decline of mature fields. Oil and gas production sold amounted to 614.1 mmboe. The 28.3 mmboe difference over production (642.4 mmboe) mainly reflected volumes of natural gas consumed in operations (26.4 mmboe), changes in inventory levels and other variations. Approximately 61% of liquids production sold (330.1 mmbbl) was destined to Eni’s mid-downstream sectors. About 25% of natural gas production sold (1,560 bcf) was destined to Eni’s Gas & Power segment.In 2015 oil spills from operations reported an increase compared to the previous year, amounting to 22%; oil spills from sabotage increased by 57%. Oil spills were concentrated in Nigeria, due to disruptions and force majeure events reported during the year. Eni continues to promote operations aimed to guarantee safety standards and at ensuring efficient operations management. |
| Oil and natural gas production (a) |
| Liquids (mmbbl) | Natural gas (bcf) | Hydrocarbons (mmboe) | Liquids (mmbbl) | Natural gas (bcf) | Hydrocarbons (mmboe) | Liquids (mmbbl) | Natural gas (bcf) | Hydrocarbons (mmboe) |
| Consolidated subsidiaries | 2013 | 2014 | 2015 | |||
| Italy | 26 | 230 | 68 | 27 | 213 | 65 | 25 | 200 | 62 | |||||||||||
| Rest of Europe | 28 | 157 | 57 | 34 | 195 | 69 | 31 | 201 | 68 | |||||||||||
| North Africa | 91 | 609 | 201 | 91 | 627 | 206 | 98 | 780 | 240 | |||||||||||
| Sub-Saharan Africa | 88 | 176 | 120 | 84 | 185 | 118 | 93 | 171 | 124 | |||||||||||
| Kazakhstan | 22 | 78 | 36 | 19 | 73 | 32 | 20 | 80 | 35 | |||||||||||
| Rest of Asia | 16 | 130 | 40 | 13 | 114 | 34 | 28 | 106 | 47 | |||||||||||
| Americas | 22 | 89 | 38 | 27 | 80 | 41 | 28 | 94 | 45 | |||||||||||
| Australia and Oceania | 4 | 40 | 11 | 2 | 40 | 10 | 2 | 41 | 9 | |||||||||||
| 297 | 1,509 | 571 | 297 | 1,527 | 575 | 325 | 1,673 | 630 | ||||||||||||
| Equity-accounted entities | ||||||||||||||||||||
| North Africa | 1 | 2 | 2 | 1 | 2 | 1 | 1 | 2 | 1 | |||||||||||
| Sub-Saharan Africa | 5 | 1 | 4 | 1 | ||||||||||||||||
| Rest of Asia | 2 | 61 | 13 | 8 | 2 | 1 | 9 | 2 | ||||||||||||
| Americas | 4 | 4 | 4 | 4 | 4 | 25 | 9 | |||||||||||||
| 7 | 68 | 20 | 5 | 14 | 8 | 6 | 36 | 12 | ||||||||||||
| Total | 304 | 1,577 | 591 | 302 | 1,541 | 583 | 331 | 1,709 | 642 | |||||||||||
(a) Includes volumes of gas consumed in operations (26.4, 29.4 and 30 mmboe in 2015, 2014 and 2013, respectively).
Contents
Eni Integrated Annual Report |
|
39 | ||
Operating review Exploration & Production |
| Oil and natural gas production (a) |
| Liquids (kbbl/d) | Natural gas (mmcf/d) | Hydrocarbons (kbbl/d) | Liquids (kbbl/d)) | Natural gas (mmcf/d) | Hydrocarbons (kbbl/d) | Liquids (kbbl/d) | Natural gas (mmcf/d) | Hydrocarbons (kbbl/d) |
| Consolidated subsidiaries | 2013 | 2014 | 2015 | |||
| Italy | 71 | 630.2 | 186 | 73 | 583.8 | 179 | 69 | 546.6 | 169 | |||||||||||
| Rest of Europe | 77 | 429.6 | 155 | 93 | 535.2 | 190 | 85 | 551.8 | 185 | |||||||||||
| Croatia | 43.0 | 8 | 38.2 | 7 | 21.2 | 4 | ||||||||||||||
| Norway | 60 | 250.5 | 106 | 62 | 274.2 | 112 | 57 | 264.6 | 105 | |||||||||||
| United Kingdom | 17 | 136.1 | 41 | 31 | 222.8 | 71 | 28 | 266.0 | 76 | |||||||||||
| North Africa | 248 | 1,668.7 | 551 | 248 | 1,718.9 | 562 | 268 | 2,138.0 | 658 | |||||||||||
| Algeria | 73 | 81.6 | 88 | 83 | 141.3 | 109 | 79 | 94.1 | 96 | |||||||||||
| Egypt | 93 | 734.6 | 227 | 88 | 649.8 | 206 | 96 | 510.1 | 189 | |||||||||||
| Libya | 76 | 836.7 | 228 | 73 | 911.2 | 239 | 89 | 1,517.3 | 365 | |||||||||||
| Tunisia | 6 | 15.8 | 8 | 4 | 16.6 | 8 | 4 | 16.5 | 8 | |||||||||||
| Sub-Saharan Africa | 242 | 481.7 | 329 | 231 | 507.5 | 323 | 256 | 468.3 | 341 | |||||||||||
| Angola | 79 | 32.7 | 84 | 75 | 38.3 | 82 | 96 | 31.6 | 101 | |||||||||||
| Congo | 90 | 161.8 | 120 | 80 | 145.1 | 106 | 78 | 136.8 | 103 | |||||||||||
| Nigeria | 73 | 287.2 | 125 | 76 | 324.1 | 135 | 82 | 299.9 | 137 | |||||||||||
| Kazakhstan | 61 | 213.5 | 100 | 52 | 200.7 | 88 | 56 | 218.3 | 95 | |||||||||||
| Rest of Asia | 43 | 354.7 | 108 | 36 | 310.4 | 93 | 77 | 289.8 | 130 | |||||||||||
| China | 7 | 3.4 | 8 | 4 | 4 | 3 | 3 | |||||||||||||
| India | 7.2 | 1 | 3.7 | 1 | 2.6 | 1 | ||||||||||||||
| Indonesia | 1 | 55.0 | 11 | 1 | 52.6 | 11 | 2 | 54.8 | 12 | |||||||||||
| Iran | 4 | 4 | 1 | 1 | 22 | 22 | ||||||||||||||
| Iraq | 22 | 22 | 21 | 21 | 40 | 40 | ||||||||||||||
| Pakistan | 283.1 | 52 | 248.2 | 45 | 226.4 | 41 | ||||||||||||||
| Turkmenistan | 9 | 6.0 | 10 | 9 | 5.9 | 10 | 10 | 6.0 | 11 | |||||||||||
| Americas | 61 | 244.5 | 106 | 74 | 217.8 | 115 | 75 | 257.1 | 122 | |||||||||||
| Ecuador | 13 | 13 | 12 | 12 | 11 | 11 | ||||||||||||||
| Trinidad & Tobago | 58.6 | 11 | 60.3 | 11 | 70.4 | 13 | ||||||||||||||
| United States | 48 | 185.9 | 82 | 62 | 157.5 | 92 | 64 | 186.7 | 98 | |||||||||||
| Australia and Oceania | 10 | 110.4 | 30 | 6 | 110.5 | 26 | 5 | 111.8 | 26 | |||||||||||
| Australia | 10 | 110.4 | 30 | 6 | 110.5 | 26 | 5 | 111.8 | 26 | |||||||||||
| 813 | 4,133.3 | 1,565 | 813 | 4,184.8 | 1,576 | 891 | 4,581.7 | 1,726 | ||||||||||||
| Equity-accounted entities | ||||||||||||||||||||
| Angola | 14.2 | 3 | 10.3 | 2 | 0.9 | |||||||||||||||
| Indonesia | 1 | 24.2 | 5 | 1 | 23.2 | 5 | 1 | 24.1 | 5 | |||||||||||
| Russia | 5 | 141.6 | 31 | |||||||||||||||||
| Tunisia | 4 | 5.5 | 5 | 4 | 5.3 | 5 | 4 | 5.2 | 4 | |||||||||||
| Venezuela | 10 | 0.8 | 10 | 10 | 0.8 | 10 | 12 | 68.9 | 25 | |||||||||||
| 20 | 186.3 | 54 | 15 | 39.6 | 22 | 17 | 99.1 | 34 | ||||||||||||
| Total | 833 | 4,319.6 | 1,619 | 828 | 4,224.4 | 1,598 | 908 | 4,680.8 | 1,760 | |||||||||||
(a) Includes volumes of gas consumed in operations (397, 442 and 451 mmcf/d in 2015, 2014 and 2013, respectively).
Contents
| 40 | Eni Integrated Annual Report |
|
||
Exploration & Production Operating review |
Productive wells
| In 2015, oil and gas productive wells were 9,241 (3,667.5 of which represented Eni’s share). In particular, oil productive wells were 6,558 (2,439.1 of which represented Eni’s share); natural gas productive wells amounted to 2,683 (1,228.4 of which represented Eni’s share). | The following table shows the number of productive wells in the year indicated by the Group and its equity-accounted entities in accordance with the requirements of FASB Extractive Activities- oil&gas (Topic 932). |
|
| Productive oil and gas wells (a) |
2015 |
Oil wells |
Natural gas wells |
|||
| (units) | Gross |
Net |
Gross |
Net |
||||
| Italy | 238.0 | 192.1 | 605.0 | 523.6 | ||||||
| Rest of Europe | 363.0 | 59.7 | 179.0 | 100.6 | ||||||
| North Africa | 1,782.0 | 941.1 | 211.0 | 90.7 | ||||||
| Sub-Saharan Africa | 3,065.0 | 613.4 | 344.0 | 27.2 | ||||||
| Kazakhstan | 185.0 | 50.7 | ||||||||
| Rest of Asia | 688.0 | 457.2 | 998.0 | 380.9 | ||||||
| Americas | 230.0 | 121.1 | 328.0 | 101.6 | ||||||
| Australia and Oceania | 7.0 | 3.8 | 18.0 | 3.8 | ||||||
| 6,558.0 | 2,439.1 | 2,683.0 | 1,228.4 | |||||||
(a) Includes 2,135 gross (744.6 net) multiple completion wells (more than one producing into the same well bore). Productive wells are producing wells and wells capable of production. One or more completions in the same bore hole are counted as one well.
Drilling
Exploration
| In 2015, a total of 29 new
exploratory wells were drilled (19.1 of which represented
Eni’s share), as compared to 44 exploratory wells
drilled in 2014 (25.8 of which represent Eni’s
share) and 53 exploratory wells drilled in 2013 (27.8 of
which represented Eni’s share). The following tables show the number of net productive, dry |
and in progress exploratory
wells in the years indicated by the Group and its
equity-accounted entities in accordance with the
requirements of FASB Extractive Activities-oil&gas
(Topic 932). The overall commercial success rate was 16.7% (25.1% net to Eni) as compared to 31.3% (38.0% net to Eni) in 2014 and 36.9% (38.5% net to Eni) in 2013. |
|
| Exploratory Well Activity |
Wells completed (a) |
Wells in progress at Dec. 31 (b) |
|||
2013 |
2014 |
2015 |
2015 |
|||||
| (units) | Productive |
Dry (c) |
Productive |
Dry (c) |
Productive |
Dry (c) |
Gross |
Net |
||||||||
| Italy | 0.6 | 4.0 | 2.8 | |||||||||||||||
| Rest of Europe | 3.4 | 4.3 | 2.2 | 9.0 | 2.3 | |||||||||||||
| North Africa | 4.9 | 5.4 | 3.5 | 4.3 | 3.3 | 5.8 | 15.0 | 12.5 | ||||||||||
| Sub-Saharan Africa | 3.2 | 6.6 | 7.3 | 7.3 | 0.6 | 2.9 | 34.0 | 17.8 | ||||||||||
| Kazakhstan | 0.4 | 6.0 | 1.1 | |||||||||||||||
| Rest of Asia | 4.3 | 2.7 | 1.3 | 4.3 | 3.4 | 7.0 | 2.3 | |||||||||||
| Americas | 0.2 | 1.2 | 2.0 | 1.4 | 1.0 | 0.3 | 4.0 | 2.5 | ||||||||||
| Australia and Oceania | 0.5 | 0.9 | 1.0 | 0.3 | ||||||||||||||
| 12.6 | 20.2 | 14.1 | 23.1 | 4.9 | 14.6 | 80.0 | 41.6 | |||||||||||
(a) Net to Eni.
(b) Includes temporary suspended wells pending further
evaluation.
(c) A dry well is an exploratory, development, or extension well
that proves to be incapable of producing either oil or gas
sufficient quantities to justify completion as an oil or gas
well.
Contents
Eni Integrated Annual Report |
|
41 | ||
Operating review Exploration & Production |
| Development In 2015, a total of 335 development wells were drilled (132.4 of which represented Eni’s share) as compared to 440 development wells drilled in 2014 (191 of which represented Eni’s share) and 463 development wells drilled in 2013 (187.2 of which represented Eni’s share). The drilling of 103 development wells (35 of which represented |
Eni’s share) is
currently underway. The following tables show the number of net productive, dry and in progress development wells in the years indicated by the Group and its equity-accounted entities in accordance with the requirements of FASB Extractive Activities - oil&gas (Topic 932). |
|
| Development Well Activity |
Wells completed (a) |
Wells in progress at Dec. 31 |
|||
2013 |
2014 |
2015 |
2015 |
|||||
| (units) | Productive |
Dry (b) |
Productive |
Dry (b) |
Productive |
Dry (b) |
Gross |
Net |
||||||||
| Italy | 7.4 | 1.0 | 12.5 | 6.0 | 6.0 | 3.6 | ||||||||||||
| Rest of Europe | 6.3 | 9.8 | 1.0 | 10.2 | 0.1 | 14.0 | 3.0 | |||||||||||
| North Africa | 61.6 | 3.3 | 54.5 | 1.0 | 30.5 | 2.8 | 17.0 | 9.2 | ||||||||||
| Sub-Saharan Africa | 26.3 | 1.2 | 31.6 | 22.0 | 2.5 | 28.0 | 4.8 | |||||||||||
| Kazakhstan | 0.3 | 1.5 | 4.7 | 16.0 | 3.1 | |||||||||||||
| Rest of Asia | 61.7 | 4.3 | 54.2 | 1.6 | 29.7 | 5.9 | 6.0 | 2.3 | ||||||||||
| Americas | 13.8 | 22.1 | 0.7 | 17.4 | 0.1 | 16.0 | 9.0 | |||||||||||
| Australia and Oceania | 0.1 | 0.4 | 0.5 | |||||||||||||||
| 177.4 | 9.8 | 186.3 | 4.7 | 121.0 | 11.4 | 103.0 | 35.0 | |||||||||||
(a) Net to Eni.
(b) A dry well is an exploratory, development, or extension well
that proves to be incapable of producing either oil or gas
sufficient quantities to justify completion as an oil or gas
well.
Acreage
| In 2015, Eni performed its
operations in 42 countries located in five continents. As
of December 31, 2015, Eni’s mineral right portfolio
consisted of 852 exclusive or shared rights of
exploration and development activities for a total
acreage of 342,708 square kilometers net to Eni of which
developed acreage of 40,640 square kilometers and
undeveloped acreage of 302,068 square kilometers net to
Eni. In 2015, changes in total net acreage mainly derived from: (i) new |
leases mainly in Egypt, Mexico, Myanmar, the United Kingdom and Ivory Coast for a total acreage of approximately 21,500 square kilometers; (ii) the total relinquishment of licenses mainly in Congo, Ghana, Italy, Nigeria, Norway, Pakistan, Tunisia and the United States, covering an acreage of approximately 15,600 square kilometers; (iii) interest increase in Australia and partial relinquishment in Indonesia for a total net acreage of 2,000 square kilometers. |
Contents
| 42 | Eni Integrated Annual Report |
|
||
Exploration & Production Operating review |
| Oil and natural gas interests |
December 31, 2014 |
December 31, 2015 |
||
Total net acreage (a) |
Number |
Gross developed acreage (a) (b) |
Gross undeveloped acreage (a) |
Total gross acreage (a) |
Net |
Net undeveloped acreage (a) |
Total net acreage (a) |
|||||||||
| EUROPE | 44,842 | 274 | 15,873 | 52,732 | 68,605 | 10,989 | 34,134 | 45,123 | ||||||||||
| Italy | 17,297 | 147 | 10,647 | 10,436 | 21,083 | 8,924 | 8,051 | 16,975 | ||||||||||
| Rest of Europe | 27,545 | 127 | 5,226 | 42,296 | 47,522 | 2,065 | 26,083 | 28,148 | ||||||||||
| Cyprus | 10,018 | 3 | 12,523 | 12,523 | 10,018 | 10,018 | ||||||||||||
| Croatia | 987 | 2 | 1,975 | 1,975 | 987 | 987 | ||||||||||||
| Greenland | 1,909 | 2 | 4,890 | 4,890 | 1,909 | 1,909 | ||||||||||||
| Norway | 3,672 | 56 | 2,310 | 7,594 | 9,904 | 452 | 2,662 | 3,114 | ||||||||||
| Portugal | 6,370 | 3 | 9,099 | 9,099 | 6,370 | 6,370 | ||||||||||||
| United Kingdom | 744 | 48 | 941 | 1,501 | 2,442 | 626 | 1,279 | 1,905 | ||||||||||
| Other Countries | 3,845 | 13 | 6,689 | 6,689 | 3,845 | 3,845 | ||||||||||||
| AFRICA | 159,341 | 283 | 63,142 | 260,577 | 323,719 | 19,788 | 137,653 | 157,441 | ||||||||||
| North Africa | 21,693 | 119 | 30,392 | 26,704 | 57,096 | 13,778 | 11,921 | 25,699 | ||||||||||
| Algeria | 1,179 | 42 | 3,222 | 187 | 3,409 | 1,148 | 31 | 1,179 | ||||||||||
| Egypt | 4,946 | 57 | 5,623 | 17,829 | 23,452 | 2,121 | 7,547 | 9,668 | ||||||||||
| Libya | 13,294 | 10 | 17,947 | 8,688 | 26,635 | 8,951 | 4,343 | 13,294 | ||||||||||
| Tunisia | 2,274 | 10 | 3,600 | 3,600 | 1,558 | 1,558 | ||||||||||||
| Sub-Saharan Africa | 137,648 | 164 | 32,750 | 233,873 | 266,623 | 6,010 | 125,732 | 131,742 | ||||||||||
| Angola | 4,327 | 72 | 7,688 | 13,608 | 21,296 | 987 | 3,417 | 4,404 | ||||||||||
| Congo | 2,883 | 26 | 1,794 | 943 | 2,737 | 971 | 383 | 1,354 | ||||||||||
| Gabon | 7,615 | 6 | 7,615 | 7,615 | 7,615 | 7,615 | ||||||||||||
| Ghana | 1,664 | 2 | 226 | 226 | 100 | 100 | ||||||||||||
| Ivory Coast | 1 | 1,431 | 1,431 | 429 | 429 | |||||||||||||
| Kenya | 40,426 | 7 | 61,363 | 61,363 | 40,426 | 40,426 | ||||||||||||
| Liberia | 1,841 | 3 | 7,364 | 7,364 | 1,841 | 1,841 | ||||||||||||
| Mozambique | 5,103 | 6 | 3,911 | 3,911 | 1,956 | 1,956 | ||||||||||||
| Nigeria | 7,638 | 36 | 23,268 | 8,747 | 32,015 | 4,052 | 3,380 | 7,432 | ||||||||||
| South Africa | 32,847 | 1 | 82,202 | 82,202 | 32,881 | 32,881 | ||||||||||||
| Other Countries | 33,304 | 4 | 46,463 | 46,463 | 33,304 | 33,304 | ||||||||||||
| ASIA | 109,237 | 70 | 17,556 | 202,632 | 220,188 | 5,803 | 111,380 | 117,183 | ||||||||||
| Kazakhstan | 869 | 6 | 2,391 | 2,542 | 4,933 | 442 | 427 | 869 | ||||||||||
| Rest of Asia | 108,368 | 64 | 15,165 | 200,090 | 215,255 | 5,361 | 110,953 | 116,314 | ||||||||||
| China | 7,075 | 8 | 77 | 7,056 | 7,133 | 13 | 7,056 | 7,069 | ||||||||||
| India | 6,167 | 11 | 206 | 16,546 | 16,752 | 109 | 6,058 | 6,167 | ||||||||||
| Indonesia | 26,248 | 14 | 3,218 | 31,415 | 34,633 | 1,217 | 23,907 | 25,124 | ||||||||||
| Iraq | 446 | 1 | 1,074 | 1,074 | 446 | 446 | ||||||||||||
| Myanmar | 7,065 | 4 | 24,080 | 24,080 | 20,050 | 20,050 | ||||||||||||
| Pakistan | 9,467 | 15 | 10,390 | 11,486 | 21,876 | 3,396 | 5,414 | 8,810 | ||||||||||
| Russia | 20,862 | 3 | 62,592 | 62,592 | 20,862 | 20,862 | ||||||||||||
| Timor Leste | 1,230 | 1 | 1,538 | 1,538 | 1,230 | 1,230 | ||||||||||||
| Turkmenistan | 180 | 1 | 200 | 200 | 180 | 180 | ||||||||||||
| Vietnam | 26,384 | 5 | 30,777 | 30,777 | 23,132 | 23,132 | ||||||||||||
| Other Countries | 3,244 | 1 | 14,600 | 14,600 | 3,244 | 3,244 | ||||||||||||
| AMERICAS | 7,943 | 211 | 5,245 | 9,458 | 14,703 | 3,351 | 3,277 | 6,628 | ||||||||||
| Ecuador | 1,985 | 1 | 1,985 | 1,985 | 1,985 | 1,985 | ||||||||||||
| Mexico | 3 | 67 | 67 | 67 | 67 | |||||||||||||
| Trinidad & Tobago | 66 | 1 | 382 | 382 | 66 | 66 | ||||||||||||
| United States | 3,500 | 192 | 1,617 | 2,301 | 3,918 | 803 | 1,315 | 2,118 | ||||||||||
| Venezuela | 1,066 | 6 | 1,261 | 1,543 | 2,804 | 497 | 569 | 1,066 | ||||||||||
| Other Countries | 1,326 | 8 | 5,547 | 5,547 | 1,326 | 1,326 | ||||||||||||
| AUSTRALIA AND OCEANIA | 13,376 | 14 | 1,140 | 21,679 | 22,819 | 709 | 15,624 | 16,333 | ||||||||||
| Australia | 13,376 | 14 | 1,140 | 21,679 | 22,819 | 709 | 15,624 | 16,333 | ||||||||||
| Total | 334,739 | 852 | 102,956 | 547,078 | 650,034 | 40,640 | 302,068 | 342,708 | ||||||||||
(a) Square kilometers.
(b) Developed acreage refers to those leases in which at least a
portion of the area is in production or encompasses proved
developed reserves.
Contents
Eni Integrated Annual Report |
|
43 | ||
Operating review Exploration & Production |
| Main exploration and development projects Italy In the Val d’Agri concession (Eni’s interest 60.77%) the development plan is progressing in line with the commitments agreed with the Basilicata Region, particularly in 2015: (i) a new gas treatment unit realized, in order to improve production capacity of the treatment oil centre and the environmental performance; (ii) the Environmental Monitoring Plan is being implemented. This project represents a benchmark in terms of environmental protection. In addition, Eni implements best practices in environmental protection by means of the Action Plan for Biodiversity in Val d’Agri; and (iii) programs to support a cultural and social development, tourism as well as development of agricultural and food farming businesses. On March 31 2016, as part of an investigation commenced by the Italian Public Prosecutor of Potenza for alleged environmental crimes that is disclosed in the legal proceeding section in the Annual Report on Form 20-F 2015 (see page F-86), it was ordered the seizure of certain plants that are functional to the activity of hydrocarbons production, which has been shut down. The interruption is currently affecting a production of approximately 60 kboe/d net to Eni. The value-in-use of the Val D’Agri CGU determined as part of the impairment review of 2015 significantly exceeds the CGU carrying amount, so to exclude that even under the worst-case production shutdown among the currently foreseeable scenarios a reduction of the CGU book value at the reporting date might occur. Other main development activities in the Adriatic and Ionic Seas concerned: (i) maintenance and optimization of production, mainly at the Barbara, Anemone, Annalisa, Armida and Guendalina fields; (ii) start-up of the Bonaccia NW project and ongoing development activities at the Clara field; and (iii) launch of CLEAN SEA program (Continuous Long-term Environment Monitoring and Asset Integrity at Sea), a robotic system of environmental monitoring and inspection of offshore facilities. Following the Memorandum of Understanding for the Gela area, signed with the Ministry of Economic Development in November 2014, Eni started preparatory study on the Argo Cluster offshore development project. Rest of Europe Norway In 2015, Eni was awarded two exploration licenses: (i) the operatorship and a 40% interest in the PL 806 license in the Barents Sea; and (ii) a 13.12% interest in the PL 044C license in the North Sea. Focus of the exploration activity in 2015 were the preparatory activities for an exploration drilling campaign planned for 2016. At the beginning of 2015, production start-up was achieved at the Eldfisk 2 field (Eni’s interest 12.39%) in the North Sea and in September 2015, Asgard Subsea Compression project started up in order to optimize production from Mitgard (Eni’s interest 14.8%) and Mikkel fields (Eni’s interest 14.9%) in the Norwegian Sea. The project is the first program of deep-sea gas compression in the world. |
In March 2016, production
start-up was achieved at the Goliat oilfield (Eni
operator with a 65% interest) in the Barents Sea.
Production plateau is expected at 65 kbbl/d net to Eni.
The project includes a subsea system consisting of 22
wells, of which 12 are oil producers, 7 water injectors
and 3 gas injectors, linked to the largest cylindrical
FPSO in the world by subsea production and injection
flowlines. The use of well-advanced technologies,
electricity supply provided to the platform from the
mainland and the re-injection of produced water and
natural gas into reservoir as well as zero gas flaring
during production activities will allow to minimize
environmental impact. The Goliat project is also equipped with a well-advanced emergency system for the management of oil spills, in terms of organization, equipment and technology advancement. The testing performed in 2015 confirmed that oil spill contingency response plan is in line with all the requirements of Norwegian Authorities. This result was achieved also thanks to the Costal Oil Spill Preparedness Improvement Program (COSPIP), launched by Eni jointly with other major oil companies and local and international research institutes. Other activities concerned the maintenance and optimization of the production at the Ekofisk field (Eni’s interest 12.39%) and start-up of the FSU at Heidrun field (Eni’s interest 5.2%) in the Norwegian Sea. United Kingdom In 2015, Eni was
awarded four exploration licenses in the Central North
Sea, with interests ranging from 9.13% to 100%. In
addition, Eni finalized the acquisition of three licenses
in the Southern North Sea, with a 100% interest. Egypt Exploration activities yielded positive results with the following discoveries: (i) the giant Zohr gas discovery, in the operated Shorouk license (Eni’s interest 100%) located in the deep offshore of Mediterranean Sea. This field is estimated to retain 30 trillion cubic feet of gas in place. The discovery could grant energy independence to the Country for many years to come. In February 2016, the Egyptian Ministry of Petroleum and Mineral Resources has approved to award to Eni the Zohr |
Contents
| 44 | Eni Integrated Annual Report |
|
||
Exploration & Production Operating review |
| Development Lease that
allows the start-up of the development program at the
Zohr gas field. The first gas is expected at the end of
2017. In addition, appraisal activity yielded positive
results with the Zohr 2X well, the first delineation
well. The delineation campaign provides the drilling of
three additional wells; (ii) oil and gas discovery with
the Melehia West Deep well in the Melehia concession
(Eni’s interest 76%) located in the western desert;
(iii) the Sidri-18 oil discovery in the Abu Rudeis
concession (Eni’s interest 100%) in the Gulf of
Suez; (iv) a gas discovery in the Nooros exploration
prospect, located in the Abu Madi West license
(Eni’s interest 75%) in the Nile Delta. This field
is estimated to retain approximately 530 billion cubic
feet of gas in place with upside, and associated
condensates. The discovery was put into production in two
months time through a tie-in to the existing Abu Madi gas
treatment plant. In February 2016, a new success
exploration was achieved with the drilling of the Nidoco
North 1X well. Production start-up is expected in the
second quarter 2016 and will allow to achieve an overall
production of 45 kboe/d in the area. During the year, Concession Agreements were ratified for the following blocks: (i) the Southwest Melehia (Eni’s interest 100%) in the western desert; (ii) Karawan (Eni operator with a 50% interest) and North Leil (Eni’s interest 100%) in the deep offshore of Mediterranean Sea; (iii) North El Hammad (Eni operator with 37.5% interest) and North Ras El Esh (Eni’s interest 50%) in the offshore Nile Delta, which is still expected to be ratified by the Country’s Authorities. In March 2015, Eni and the Egyptian Ministry of Petroleum and Mineral Resources signed a framework agreement, which comprises a plan to invest up to $5 billion (at 100%) in the development of the Country’s oil and gas reserves over the next few years. The agreement also includes a revision of certain Eni’s ongoing oil contracts, with the economic effects retroactive to January 1, 2015. The agreement also comprises the identification of new measures to reduce overdue amounts of trade receivables relating to hydrocarbons supplies to Egyptian state-owned companies. In November 2015, as foreseen in the agreement, Eni signed three amendments for the concessions of Sinai 12 (Eni’s interest 100%) and Abu Madi, North Port Said (Eni’s interest 100%) and Baltim (Eni operator with a 50% interest), for the realization of projects to be implemented in the next years and to support the increasing energy needs of Egyptian local demand. In addition, Eni signed a new Concession Agreement for the Ashrafi area (Eni’s interest 25%). Certain planned activities are currently in the execution phase and one additional well in Baltim concession has already been put into production. Production activities during the year concerned mainly infilling wells in the Gulf of Suez and Western Desert areas and for gas in El Temsah and Baltim and other production optimization activities aimed to optimized reserves recovery. During the year, the Chemical Enhanced Oil Recovery pilot project was launched in order to optimize the recovery of the mineral potential of the Belayim field (Eni’s interest 100%). Libya Exploration activities near-field yielded positive results in the contractual area D (Eni’s interest 50%), with gas and |
condensates discoveries: (i)
in the offshore Bahr Essalam South exploration prospect,
nearby to the Bahr Essalam production field; (ii) in the
offshore Bouri North exploration prospect, nearby to the
Bouri production field. These discoveries confirm the
high mineral potential of the natural gas resources still
present in the Country. In January 2015, Eni and the State company NOC signed an agreement that ensures during the 2015-2018 four-year period the sale of the associated gas to the production of the Bu Attifel oilfield in the contractual area B (Eni’s interest 100%). Development activities in the contractual area D concerned: (i) the linkage and the start-up of three infilling wells, in addition to the activity of production optimization at the Wafa field; (ii) the start-up of the second development phase of the Bahr Essalam field by means of the start-up of drilling campaign and the award of EPC contract for the construction of linkage subsea facility to the onshore treatment plans. Sub-Saharan Africa Angola In 2015, Eni and the State
company Sonangol signed certain agreements aimed at
strengthening strategic and operational partnership,
which include: (i) the commitment to upgrade the current
development plans for the Lobito refinery, owned by the
Angolan national company, with Eni’s expertise and
know-how in the downstream sector including the potential
synergies deriving from existing refineries; and (ii) the
commitment to progress the ongoing evaluation of the gas
resources in the Lower Congo Basin, in the framework of a
strategy aimed at guaranteeing accessible energy in the
Country. Once these are developed, they will allow energy
supply to the internal market, sustaining local economy
and the agricultural projects, which ease the
diversification of the Country’s economy. In
addition, Eni and Sonangol agreed a revision of certain
contractual terms to support investments in the Block
15/06 (Eni operator with a 36.84% interest), where in
January 2015, Eni obtained a three-year extension of the
exploration period. |
Contents
Eni Integrated Annual Report |
|
45 | ||
Operating review Exploration & Production |
| Other development activities
concerned: (i) the completion of flaring down activities
at the Nemba field (Eni’s interest 9.8%), with a
reduction of gas flared of approximately 85%; and (ii)
the Mafumeira project (Eni’s interest 9.8%) with
production start-up expected at the end of 2016. Congo
Exploration activities yielded positive results in the
Marine XII block (Eni operator with a 65% interest) with:
(i) the Minsala N1 appraisal well, confirming the mineral
potential of the Minsala discovery; and (ii) the Nkala
Marine discovery with a mineral potential estimated in
approximately 250-300 million boe. The exploration
successes in the pre-salt sequences of the Marine XII
block confirms Eni’s exploration technologies
effectiveness. Eni estimates the resources in place of
oil and gas to be approximately 5.8 billion boe. Ghana In March 2016, Eni was awarded the
operatorship of the exploration license Cape Three Points
Block 4 (Eni’s interest 42.47%), located in the
offshore of the country. |
facilities; and (ii) the
start-up of the development activities with the drilling
of 5 development wells. In addition, during 2015, a Livelihood Restoration plan was defined to support local community. Leveraging on Eni’s cooperation model, a project together with local stakeholders was defined to support local communities in the medium to long-term. Main undergoing activities are focused in the Western Region of the Country, where the ongoing Health Project will involve more than 300,000 people. In particular, the project includes: (i) the building of 8 clinics, 6 of which have already been completed; (ii) the renovation of 9 already existing clinics, 2 of which completed; (iii) the building and renovation of a maternity ward, in addition to the one already inaugurated in 2015; and (iv) five ambulances were delivered, while training programs for both medical and paramedical staff are being carried out, as well as further supply of medical equipment. Mozambique
In October 2015, Eni was awarded the operatorship of the
exploration offshore Block A-5A (Eni’s interest
34%). The block is located in the deep offshore of
Zambesi covering an area of approximately 5,000 square
kilometers. |
Contents
| 46 | Eni Integrated Annual Report |
|
||
Exploration & Production Operating review |
| all contracts and commercial
agreements by Mozambique authorities and JV partners. Leveraging on Eni’s cooperation model, a medium-long term program was defined to support local communities also involving all local stakeholders as integrated part of the development activity. The guidelines of the program include projects to develop the socio-economic conditions of local communities and respect for biodiversity. In particular, during 2015, certain projects were completed, such as: (i) Water Wells Project, aimed to improve access to water in the Palma area, by means of the water management system which includes the constitution of committees for local management in order to guarantee the sustainability of the initiatives in the long-term; (ii) educational programs including primary and secondary school as well as professional training; (iii) power supply to the primary school in the Pemba area to support literacy; and (iv) the renovation of certain hospital departments in Pemba area and specific training initiatives dedicated to doctors, nurses and hospital technicians. Nigeria
Eni completed activities and achieved production
start-ups at: (i) the Bonga NW project, by means of the
linkage of additional productive and infilling wells to
the existing FPSO; and (ii) the Abo project Phase 3, by
means of the linkage of two additional production wells
to the existing production facilities in the area. |
30 mmtonnes/y of LNG,
corresponding to a feedstock of approximately 1,624
bcf/y. Natural gas supplies to the plant are currently
provided under gas supply agreements with an expiring
date in eighteen years from the SPDC JV and the NAOC JV,
the latter operating the OMLs 60, 61, 62 and 63 blocks
with an average amount of approximately 2,825 mmcf/d for
the next four years (approximately 268 mmcf/d net to Eni
corresponding to approximately 48 kboe/d). LNG production
is sold under long-term contracts and exported to US,
Asian and European markets by the Bonny Gas Transport
fleet, wholly owned by Nigeria LNG Co. During 2015, six
new vessels were launched. Kazakhstan New initiatives In June 2015, Eni and KazMunayGas (KMG) signed an agreement on the transfer to Eni of the 50% stake for exploration and production activities in the Isatay block located in the Kazakh sector of the Caspian Sea. The transfer is expected to be finalized after all necessary approvals required by law. The Isatay block is estimated to have significant potential oil resources and will be operated by a joint operating company established by KMG and Eni on a 50/50 basis. In addition, after the finalization of the FEED, the activities related to the contracts’ award for the construction of a shipyard in Kuryk started, as provided by the agreements signed in 2014. Kashagan On June 13, 2015, the
Consortium completed a new setup of the operating model
to execute the development of the project, targeting to
streamline decision-making process, to increase
efficiency in operations and to reduce costs. This new
operating model provides that the company NCOC NV,
participated by the seven partners of the Consortium,
acts as the sole operator of all exploration, development
and production activities at the Kashagan field
(Eni’s interest 16.81%). |
Contents
Eni Integrated Annual Report |
|
47 | ||
Operating review Exploration & Production |
| As of December 31, 2015,
Eni’s proved reserves booked for the Kashagan field
amounted to 611 mmbbl, recording an increase of 31 mmbbl
compared to 2014 mainly due to lower marker Brent price.
The major part of Kashagan reserves are classified proved
undeveloped. Karachaganak In June 2015,
the Gas Sales Agreement for the Karachaganak field (Eni
29.25%) was extended until 2038. The agreement provides
the supply of currently produced gas volumes to the
Orenburg treatment plant, including additional new
development projects to support the current liquids and
gas production. Rest of Asia Indonesia Evaluation activities
following the Merakes gas discovery in the deep offshore
of the East Sepinngan block (Eni operator with an 85%
interest), allowed to increase significantly the
estimates of gas reserves in place. |
Iran
Eni’s activities in the Country regarded the
recovery of its past costs incurred for the development
of oil projects and currently handed over to local
partners. Eni does not believe that its activities
violate any applicable law also including the latest
agreement between Iran and Western countries that led to
the partial removal of sanctions. Iraq
The first stage of the development activities
(Rehabilitation Plan) of Zubair field (Eni’s
interest 41.6%) was substantially completed. At the
beginning of March 2016, three new generation plants for
the oil, gas and water treatment (Initial Production
Facilities - IPF) started. Those plants together with
existing restructured and modernized facilities increased
oil and natural gas treatment capacity of Zubair field to
approximately 650 kbbl/d and will ensure the maximization
of the associated gas utilization. In addition, these new
facilities have also a water re-injection capacity of
approximately 300 kbbl/d that will boost the
Zubair’s hydrocarbons production. Americas United States Exploration activities
yielded positive results with the Puckett Trust 1H well,
within the agreement signed with Quicksilver Resources
for joint evaluation, exploration and development of
unconventional oil reservoirs (shale oil) in the southern
part of the Delaware Basin, in West Texas. The discovery
has already been connected to the existing production
facilities. |
Contents
| 48 | Eni Integrated Annual Report |
|
||
Exploration & Production Operating review |
| Leveraging on Eni’s
model for sustainable development, during the year an
updating of the Action Plan for Biodiversity and
Ecosystem Services in the Nikaitchuq field area
continued. Venezuela In July 2015,
production started at the gas giant Perla field, located
in the Cardon IV block (Eni’s interest 50%) in the
Gulf of Venezuela. The gas will be mainly used by the
State company PDVSA for the domestic market, under the
Gas Sales Agreement running until 2036. The development
of Perla has been planned in three phases with 21 wells
and the installation of four offshore platforms linked
via sealine to an onshore treatment plant. The production
level at year-end was approximately 500 mmcf/d at 100%.
The second phase will ensure production ramp-up at
approximately 800 mmcf/d. The development plan targets a
long-term production plateau of approximately 1,200
mmcf/d through a third phase of development. |
Capital expenditure Capital expenditure of the Exploration & Production segment (euro 10,234 million) concerned development of oil and gas reserves (euro 9,341 million) directed mainly outside Italy, in particular in Angola, Norway, Egypt, Kazakhstan, Congo, Indonesia and the United States. Development expenditures in Italy concerned in particular the drilling program of development wells and facility upgrading in Val d’Agri as well as sidetrack and workover activities in mature fields. About 97% of exploration expenditures (euro 820 million) were directed outside Italy in particular to Egypt, Libya, Cyprus, Gabon, Congo, the United States, the United Kingdom and Indonesia. In Italy, exploration activities were directed mainly to the Adriatic offshore, Val d’Agri and Po Valley. In 2015, overall expenditure in R&D amounted to euro 78 million (euro 83 million in 2014). A total of 8 new patents applications were filed. |
| Capital expenditure | (euro million) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| Acquisition of proved and unproved properties | 109 | |||||||||||||
| North Africa | 109 | |||||||||||||
| Sub-Saharan Africa | ||||||||||||||
| Americas | ||||||||||||||
| Exploration | 1,669 | 1,398 | 820 | (578 | ) | (41.3 | ) | |||||||
| Italy | 32 | 29 | 28 | (1 | ) | (3.4 | ) | |||||||
| Rest of Europe | 357 | 188 | 176 | (12 | ) | (6.4 | ) | |||||||
| North Africa | 95 | 227 | 289 | 62 | 27.3 | |||||||||
| Sub-Saharan Africa | 757 | 635 | 196 | (439 | ) | (69.1 | ) | |||||||
| Kazakhstan | 1 | |||||||||||||
| Rest of Asia | 233 | 160 | 71 | (89 | ) | (55.6 | ) | |||||||
| Americas | 110 | 139 | 54 | (85 | ) | (61.2 | ) | |||||||
| Australia and Oceania | 84 | 20 | 6 | (14 | ) | (70.0 | ) | |||||||
| Development | 8,580 | 9,021 | 9,341 | 320 | 3.5 | |||||||||
| Italy | 743 | 880 | 679 | (201 | ) | (22.8 | ) | |||||||
| Rest of Europe | 1,768 | 1,574 | 1,264 | (310 | ) | (19.7 | ) | |||||||
| North Africa | 808 | 832 | 1,570 | 738 | 88.7 | |||||||||
| Sub-Saharan Africa | 2,675 | 3,085 | 2,998 | (87 | ) | (2.8 | ) | |||||||
| Kazakhstan | 658 | 521 | 835 | 314 | 60.3 | |||||||||
| Rest of Asia | 749 | 1,105 | 1,333 | 228 | 20.6 | |||||||||
| Americas | 1,127 | 921 | 637 | (284 | ) | (30.8 | ) | |||||||
| Australia and Oceania | 52 | 103 | 25 | (78 | ) | (75.7 | ) | |||||||
| Other expenditure | 117 | 105 | 73 | (32 | ) | (30.5 | ) | |||||||
| 10,475 | 10,524 | 10,234 | (290 | ) | (2.8 | ) | ||||||||
Contents
Performance of the year
| n |
> In 2015, the injury frequency rate of total workforce increased by 6.5% compared to 2014, even if in both years the same number of accidents was recorded (5 accidents).
> In 2015, greenhouse gas emissions reported an increase of 4.4%, lower than the power generation increase (up by 5.8%). Furthermore, the energy efficiency initiatives and the start-up of the Bolgiano power plant, allowed to improve all the emission indicators.
> The water consumption rate of EniPower’s plants decreased by 11.8% due to more efficient water use in the production process at certain sites.
> In 2015, adjusted net loss of the
Gas & Power segment amounted to euro 168 million, worsening
by euro 254 million compared to euro 86 million adjusted
operating profit reported in 2014. This reflected the one-off
economic benefits associated to certain contract renegotiations
recorded in 2014 as well as the negative outcome of a commercial
arbitration in the fourth quarter
of 2015.
> Eni worldwide gas sales amounted to 90.88 bcm, up by 1.71 bcm or 1.9% compared to 2014. Eni’s sales in Italy increased by 12.9% to 38.44 bcm, due to higher spot sales and more typical winter conditions compared to the last year. Sales in the European markets were 38.28 bcm, down by 9.3% from the previous year.
> Electricity sales were 34.88 TWh, up by 1.30 TWh, or 3.9% compared to 2014.
> Capital expenditure amounting to euro 154 million mainly concerned the flexibility and upgrading of combined cycle power stations (euro 69 million) as well as gas marketing initiatives in Italy and abroad (euro 69 million).
Contents
| 50 | Eni Integrated Annual Report |
|
||
Gas & Power Operating review |
| Strategy In
the Gas & Power segment we forecast sluggish demand
growth even if far below the pre-crisis levels. We expect
structural headwinds in the industry due to the
increasing pressure of cheaper electricity from coal and
renewables and increasing oversupply exacerbated by
continued slowdown in China’s industrial activity.
European hubs will continue to play even more important
role where approximately 60% of gas is exchanged. Against
this scenario our priority is to preserve the economic
and financial sustainability in the long-term. In order
to achieve this goal, our strategy in the Gas & Power
sector will leverage on: |
 Eni operates in a liberalized market where energy customers are allowed to choose the gas supplier and, according to their specific needs, to evaluate the quality of services and offers. Overall Eni supplies approximately 1,300 customers including large companies, power generation companies, wholesalers and distributors of natural gas for automotive use. Residential users are approximately 7.88 million amid households, |
professionals, small and
medium-sized enterprises and public bodies located all
over Italy, and approximately 2.3 million customers in
European countries. In a trading environment characterized by a slight recover in demand (up by 9% in the Italian market compared to the previous year and up by 6.5% in the European Union), and a market still depressed specially compared to the volumes marketed before the crisis and a raised competitive pressure, Eni carried out a number of initiatives, such as renegotiation of supply contracts, efficiency and optimization actions - in order to preserve the business profitability in a weak demand scenario (for further information on the European scenario, see chapter on "Risk factors" below). Natural Gas Supply of natural gas In 2015, Eni consolidated subsidiaries supplied 85.39 bcm of natural gas, up by 2.48 bcm, or 3% from 2014. |
| Supply of natural gas | (bcm) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| Italy | 7.15 | 6.92 | 6.73 | (0.19 | ) | (2.7 | ) | ||||||||||
| Russia | 29.59 | 26.68 | 30.33 | 3.65 | 13.7 | ||||||||||||
| Algeria (including LNG) | 9.31 | 7.51 | 6.05 | (1.46 | ) | (19.4 | ) | ||||||||||
| Libya | 5.78 | 6.66 | 7.25 | 0.59 | 8.9 | ||||||||||||
| Netherlands | 13.06 | 13.46 | 11.73 | (1.73 | ) | (12.9 | ) | ||||||||||
| Norway | 9.16 | 8.43 | 8.40 | (0.03 | ) | (0.4 | ) | ||||||||||
| United Kingdom | 3.04 | 2.64 | 2.35 | (0.29 | ) | (11.0 | ) | ||||||||||
| Hungary | 0.48 | 0.38 | 0.21 | (0.17 | ) | (44.7 | ) | ||||||||||
| Qatar (LNG) | 2.89 | 2.98 | 3.11 | 0.13 | 4.4 | ||||||||||||
| Other supplies of natural gas | 3.63 | 5.56 | 7.21 | 1.65 | 29.7 | ||||||||||||
| Other supplies of LNG | 1.58 | 1.69 | 2.02 | 0.33 | 19.5 | ||||||||||||
| Outside Italy | 78.52 | 75.99 | 78.66 | 2.67 | 3.5 | ||||||||||||
| TOTAL SUPPLIES OF ENI’S CONSOLIDATED SUBSIDIARIES | 85.67 | 82.91 | 85.39 | 2.48 | 3.0 | ||||||||||||
| Offtake from (input to) storage | (0.58 | ) | (0.20 | ) | 0.20 | 100.0 | |||||||||||
| Network losses, measurement differences and other changes | (0.31 | ) | (0.25 | ) | (0.34 | ) | (0.09 | ) | (36.0 | ) | |||||||
| AVAILABLE FOR SALE BY ENI’S CONSOLIDATED SUBSIDIARIES | 84.78 | 82.46 | 85.05 | 2.59 | 3.1 | ||||||||||||
| Available for sale by Eni’s affiliates | 5.78 | 3.65 | 2.67 | (0.98 | ) | (26.8 | ) | ||||||||||
| E&P volumes | 2.61 | 3.06 | 3.16 | 0.10 | 3.3 | ||||||||||||
| TOTAL AVAILABLE FOR SALE | 93.17 | 89.17 | 90.88 | 1.71 | 1.9 | ||||||||||||
Contents
Eni Integrated Annual Report |
|
51 | ||
Operating review Gas & Power |
 Gas volumes supplied outside Italy (78.66 bcm from consolidated companies), imported in Italy or sold outside Italy, represented approximately 92% of total supplies, up by 2.67 bcm, or 3.5% compared to the previous year, due to higher volumes purchased in Russia (up by 3.65 bcm) and Libya (up by 0.59 bcm), partly |
offset by lower volumes
purchased in the Netherlands (down by 1.73 bcm), Algeria
(down by 1.46 bcm) and in the United Kingdom (down by
0.29 bcm). Supplies in Italy (6.73 bcm) registered a
slight decrease (down by 0.19 bcm) from 2014 due to
mature fields’ decline. In 2015, main gas volumes from equity production derived from: (i) Italian gas fields (5.2 bcm); (ii) certain Eni fields located in the British and Norwegian sections of the North Sea (2.2 bcm); (iii) Libyan fields (2.2 bcm); (iv) the United States (1.4 bcm); (v) other European areas (Croatia with 0.2 bcm). Considering also direct sales of the Exploration & Production segment and LNG supplied from the Bonny liquefaction plant in Nigeria, supplied gas volumes from equity production were approximately 17 bcm representing 19% of total volumes available for sale. Sales
of natural gas |
| Gas sales by entity | (bcm) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| Total sales of subsidiaries | 83.60 | 81.73 | 84.94 | 3.21 | 3.9 | |||||||||
| Italy (including own consumption) | 35.76 | 34.04 | 38.44 | 4.40 | 12.9 | |||||||||
| Rest of Europe | 42.30 | 43.07 | 41.14 | (1.93 | ) | (4.5 | ) | |||||||
| Outside Europe | 5.54 | 4.62 | 5.36 | 0.74 | 16.0 | |||||||||
| Total sales of Eni’s affiliates (net to Eni) | 6.96 | 4.38 | 2.78 | (1.60 | ) | (36.5 | ) | |||||||
| Italy | 0.10 | |||||||||||||
| Rest of Europe | 5.05 | 3.15 | 1.75 | (1.40 | ) | (44.4 | ) | |||||||
| Outside Europe | 1.81 | 1.23 | 1.03 | (0.20 | ) | (16.3 | ) | |||||||
| E&P in Europe and in the Gulf of Mexico | 2.61 | 3.06 | 3.16 | 0.10 | 3.3 | |||||||||
| WORLDWIDE GAS SALES | 93.17 | 89.17 | 90.88 | 1.71 | 1.9 | |||||||||
| Gas sales by market | (bcm) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| ITALY | 35.86 | 34.04 | 38.44 | 4.40 | 12.9 | |||||||||
| Wholesalers | 4.58 | 4.05 | 4.19 | 0.14 | 3.5 | |||||||||
| Italian gas exchange and spot markets | 10.68 | 11.96 | 16.35 | 4.39 | 36.7 | |||||||||
| Industries | 6.07 | 4.93 | 4.66 | (0.27 | ) | (5.5 | ) | |||||||
| Small and medium-sized enterprises and services | 1.12 | 1.60 | 1.58 | (0.02 | ) | (1.3 | ) | |||||||
| Power generation | 2.11 | 1.42 | 0.88 | (0.54 | ) | (38.0 | ) | |||||||
| Residential | 5.37 | 4.46 | 4.90 | 0.44 | 9.9 | |||||||||
| Own consumption | 5.93 | 5.62 | 5.88 | 0.26 | 4.6 | |||||||||
| INTERNATIONAL SALES | 57.31 | 55.13 | 52.44 | (2.69 | ) | (4.9 | ) | |||||||
| Rest of Europe | 47.35 | 46.22 | 42.89 | (3.33 | ) | (7.2 | ) | |||||||
| Importers in Italy | 4.67 | 4.01 | 4.61 | 0.60 | 15.0 | |||||||||
| European markets | 42.68 | 42.21 | 38.28 | (3.93 | ) | (9.3 | ) | |||||||
| Iberian Peninsula | 4.90 | 5.31 | 5.40 | 0.09 | 1.7 | |||||||||
| Germany/Austria | 8.31 | 7.44 | 5.82 | (1.62 | ) | (21.8 | ) | |||||||
| Benelux | 8.68 | 10.36 | 7.94 | (2.42 | ) | (23.4 | ) | |||||||
| Hungary | 1.84 | 1.55 | 1.58 | 0.03 | 1.9 | |||||||||
| UK | 3.51 | 2.94 | 1.96 | (0.98 | ) | (33.3 | ) | |||||||
| Turkey | 6.73 | 7.12 | 7.76 | 0.64 | 9.0 | |||||||||
| France | 7.73 | 7.05 | 7.11 | 0.06 | 0.9 | |||||||||
| Other | 0.98 | 0.44 | 0.71 | 0.27 | 61.4 | |||||||||
| Extra European markets | 7.35 | 5.85 | 6.39 | 0.54 | 9.2 | |||||||||
| E&P in Europe and in the Gulf of Mexico | 2.61 | 3.06 | 3.16 | 0.10 | 3.3 | |||||||||
| WORLDWIDE GAS SALES | 93.17 | 89.17 | 90.88 | 1.71 | 1.9 | |||||||||
Contents
| 52 | Eni Integrated Annual Report |
|
||
Gas & Power Operating review |
| Sales in Italy increased to
38.44 bcm, up by 12.9% due to higher spot volumes and
more severe weather conditions compared to 2014. These
effects were partially offset by lower volumes marketed
to the thermoelectric segment due to the competition from
other energy sources (in particular, from renewables),
the reduction in electricity demand registered in
particular in the first part of the year as well as lower
sales to the industrial segment due to increasing
competitive pressure. Sales in European markets were
38.28 bcm, down by 9.3% from last year. This can be
attributable to lower spot sales in Benelux and in
Germany/Austria due to competitive pressure and the
divestment of the GVS joint venture occurred in 2014 as
well as in the United Kingdom, partially offset by higher
sales in Turkey reflecting higher sales to Botas. Direct
sales of Exploration & Production segment in Northern
Europe and the United State (3.16 bcm) increased by 0.10
bcm due to higher volumes marketed in the North Sea. |
|
| LNG sales | (bcm) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| G&P sales | 8.4 | 8.9 | 9.0 | 0.1 | 1.1 | |||||||||
| Rest of Europe | 4.6 | 5.0 | 4.8 | (0.2 | ) | (4.0 | ) | |||||||
| Outside Europe | 3.8 | 3.9 | 4.2 | 0.3 | 7.7 | |||||||||
| E&P sales | 4.0 | 4.4 | 4.5 | 0.1 | 2.3 | |||||||||
| Terminals: | ||||||||||||||
| Soyo (Angola) | 0.1 | 0.1 | (0.1 | ) | .. | |||||||||
| Bontang (Indonesia) | 0.5 | 0.5 | 0.5 | |||||||||||
| Point Fortin (Trinidad & Tobago) | 0.6 | 0.6 | 0.7 | 0.1 | 16.7 | |||||||||
| Bonny (Nigeria) | 2.4 | 2.8 | 2.8 | |||||||||||
| Darwin (Australia) | 0.4 | 0.4 | 0.5 | 0.1 | 25.0 | |||||||||
| 12.4 | 13.3 | 13.5 | 0.2 | 1.5 | ||||||||||
Power
| Availability
of electricity Eni’s power generation sites are located in Ferrera Erbognone, Ravenna, Livorno, Mantova, Brindisi, Ferrara and Bolgiano. In 2015, power generation was 20.69 TWh, up by 1.14 TWh, or 5.8% from 2014, mainly due to higher production at Ferrara Erbognone, Ravenna and Brindisi plants following increasing demand. As of December 31, 2015, installed operational capacity was 4.9 GW (4.9 GW as of December 31, 2014). Electricity trading reported a slight increase to 14.19 TWh, due to higher purchases on the spot market (up by 1.1%) reflecting mainly higher spot sales, almost |
completely offset by lower
electricity sales. Power sales |
| 2013 | 2014 | 2015 | Change | % Ch. | ||||||||||
| Purchases of natural gas | (mmcm) | 4,295 | 4,074 | 4,270 | 196 | 4.8 | ||||||||||
| Purchases of other fuels | (ktoe) | 449 | 338 | 313 | (25 | ) | (7.4 | ) | ||||||||
| Power generation | (TWh) | 21.38 | 19.55 | 20.69 | 1.14 | 5.8 | ||||||||||
| Steam | (ktonnes) | 9,907 | 9,010 | 9,318 | 308 | 3.4 | ||||||||||
Contents
Eni Integrated Annual Report |
|
53 | ||
Operating review Gas & Power |
| Availability of electricity | (TWh) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| Power generation | 21.38 | 19.55 | 20.69 | 1.14 | 5.8 | |||||||||
| Trading of electricity (a) | 13.67 | 14.03 | 14.19 | 0.16 | 1.1 | |||||||||
| 35.05 | 33.58 | 34.88 | 1.30 | 3.9 | ||||||||||
| Free market | 28.73 | 24.86 | 25.90 | 1.04 | 4.2 | |||||||||
| Italian Exchange for electricity | 1.96 | 4.71 | 5.09 | 0.38 | 8.1 | |||||||||
| Industrial plants | 3.31 | 3.17 | 3.23 | 0.06 | 1.9 | |||||||||
| Other (a) | 1.05 | 0.84 | 0.66 | (0.18 | ) | (21.4 | ) | |||||||
| Power sales | 35.05 | 33.58 | 34.88 | 1.30 | 3.9 | |||||||||
(a) Includes positive and negative network imbalances (difference between electricity placed on the market vs. planned quantities).
Capital
expenditure
| In 2015, capital expenditure amounted to euro 154 million, mainly related to initiatives aimed to improve flexibility and upgrade the | combined cycle power plants (euro 69 million) and gas marketing initiatives (euro 69 million). |
| Capital expenditure | (euro million) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| Marketing | 206 | 164 | 138 | (26 | ) | (15.9 | ) | |||||||
| Marketing | 87 | 66 | 69 | 3 | 4.5 | |||||||||
| Italy | 42 | 30 | 31 | 1 | 3.3 | |||||||||
| Outside Italy | 45 | 36 | 38 | 2 | 5.6 | |||||||||
| Power generation | 119 | 98 | 69 | (29 | ) | (29.6 | ) | |||||||
| International transport | 23 | 8 | 16 | 8 | 100.0 | |||||||||
| 229 | 172 | 154 | (18 | ) | (10.5 | ) | ||||||||
| of which: | ||||||||||||||
| Italy | 161 | 128 | 100 | (28 | ) | (21.9 | ) | |||||||
| Outside Italy | 68 | 44 | 54 | 10 | 22.7 | |||||||||
Contents
Performance of the year
| n |
> In 2015 continued the positive trend in injury frequency rates of total workforce (down by 10.1%).
> Greenhouse gas emissions reported a decrease of 3.7% in absolute terms. The increase of emissions related to higher volumes processed in the period were offset by the initiatives focused on energy efficiency and reduction of fugitive methane. These actions allowed to reduce the ratio between emissions and throughputs to 17.3%.
> In 2015, the Refining & Marketing reported an adjusted net profit of euro 282 million, up by euro 323 million compared to the adjusted operating loss of euro 41 million reported in previous year. This result reflected improved refining margins scenario and restructuring and optimization initiatives, which, together with an improved selection of raw materials, reduced refining break-even margin to 5 $/bl anticipating EBIT break-even to 2015, vs. an original guidance for the year 2017 indicated in the 2015-2018 strategic plan.
> In 2015, refining throughputs were 26.41 mmtonnes, up by 1.38 mmtonnes 5.5% from 2014. In Italy, processed volumes increased by 14.1% mainly due to seized opportunities of the favorable refinery scenario. On a homogeneous basis, when excluding the impact of the disposal of the refining capacity in Czech Republic and the reconversion shutdown at Gela refinery, Eni’s refining throughputs increased by 15%. Volumes processed in Italy increased by 16.4% reflecting a favorable trading environment.
> In 2015, the production of biofuels amounted to 0.20 mmtonnes, up by 53.8% compared to a year ago reflecting the performance of Porto Marghera bio-refinery started-up in 2014.
> Retail sales in Italy amounted to 5.96 mmtonnes, down by 0.18 mmtonnes, or 2.9% from 2014, due to lower volumes marketed in motorway and lease concession networks.
> Retail sales in the Rest of Europe of 2.93 mmtonnes reported a decrease of 4.6% compared to 2014. This result reflected the disposal of assets in Czech Republic, Slovakia and Romania, only partially offset by higher volumes marketed in Germany, Switzerland and Austria.
Contents
Eni Integrated Annual Report |
|
55 | ||
Operating review Refining & Marketing |
> Capital expenditure amounting to euro 408 million mainly related to: (i) refining activities in Italy and outside of Italy (euro 282 million), aiming mainly at plants maintenance, as well as initiatives in the field of health, security and environment; (ii) enhancement and rebranding of the retail distribution network in Italy (euro 75 million) and in the Rest of Europe (euro 51 million).
> In 2015, total expenditure in
R&D amounted to approximately euro 27 million. During the
year 4 patent applications were filed.
Licensing of EST technology
| n |
In September 2015, Eni licensed to Total the use of the
Eni’s Slurry Technology (EST), as part of the deal, the
companies agreed to cooperate in a joint development project for
EST, under which Eni will work together with Total to evaluate
and tailor the technology to help meet Total’s specific
requirements. This agreement represents for Eni the first
contract of non-exclusive sale of the EST technology user license
and opens the opportunity for a future growth of the new market
of own-technology sale, which is possible after the industrial
consolidation of the first-world unit operating at Sannazzaro
Refinery.
Marketing of Eni Diesel+
| n |
Starting from January 2016, the new Eni Diesel+ is available in over 3,500 fuel stations all over Italy. The new fuel has a 15% renewable component, produced from plant oils in Eni’s Venice refinery using the Ecofining™ technology. Eni Diesel+ combines the performance features of the latest-generation premium fuels (extends the life of car motors, ensures better performance and reduces consumption by up to 4%) with more care for the environment (reduces CO2 emissions by 5% on average, unburned hydrocarbons by up to 40% and particulate matter by up to 20%).
| Strategy The
priority of the Refining & Marketing segment is the
consolidation of business profitability registered in the
last reporting period, in a context of weak fundamentals
of the European refining market, affected by structural
overcapacity, as well as the increasing competitive
pressure from streams of oil products imported from
Middle East, Russia and Asia. |
Supply and Trading
| In 2015, were purchased 24.80 mmtonnes of crude oil (compared with 23.02 mmtonnes in 2014), of which 5 mmtonnes by equity crude oil. The subdivision by geographic area was as follows: | approximately 47% of purchased crude came from former USSR, 20% from the Middle East, 16% from Italy, 12% from North Africa, 2% from West Africa, 1% from North Sea and 2% from other areas. | |
| Purchases | (mmtonnes) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| Equity crude oil | 5.93 | 5.81 | 5.04 | (0.77 | ) | (13.3 | ) | ||||||||||
| Other crude oil | 19.71 | 17.21 | 19.76 | 2.55 | 14.8 | ||||||||||||
| Total crude oil purchases | 25.64 | 23.02 | 24.80 | 1.78 | 7.7 | ||||||||||||
| Purchases of intermediate products | 2.46 | 2.02 | 1.66 | (0.36 | ) | (17.8 | ) | ||||||||||
| Purchases of products | 9.62 | 11.07 | 10.68 | (0.39 | ) | (3.5 | ) | ||||||||||
| TOTAL PURCHASES | 37.72 | 36.11 | 37.14 | 1.03 | 2.9 | ||||||||||||
| Consumption for power generation | (0.55 | ) | (0.57 | ) | (0.41 | ) | 0.16 | 28.1 | |||||||||
| Other changes (a) | (1.59 | ) | (0.62 | ) | (1.22 | ) | (0.60 | ) | (96.8 | ) | |||||||
| 35.58 | 34.92 | 35.51 | 0.59 | 1.7 | |||||||||||||
(a) Include change in inventories, decrease due to transportation, consumption and losses.
Contents
| 56 | Eni Integrated Annual Report |
|
||
Refining & Marketing Operating review |
Refining
| In 2015, refining
throughputs were 26.41 mmtonnes, up by 1.38 mmtonnes, or
5.5% from 2014. In Italy, refinery throughputs increased by 14.1% from 2014, reflecting the favorable refinery scenario. Particularly, the selection of crude oil purchased has been addressed to high-sulphur and profitable quality, thanks to a purchase strategy which privileged spot market vs. long-term market. On an homogeneous structure, excluding the effect of the shutdown for conversion of the Refinery of Gela, volumes processed increased by 16.4% compared to 2014. The volumes of palm oil processed at Venice plant reported an increase compared with 2014 (start-up year). On a homogeneous basis when excluding the effects of the shutdown of the Gela, process volumes increased by 16.4% from 2014. In 2015, the production of biofuels increased from 2014 period (start-up year of Porto Marghera bio-refinery). Outside Italy, Eni’s refining throughputs were 3.69 mmtonnes, |
down by 1.42 mmtonnes, or
27.8% from previous reporting period, mainly due to the
above mentioned divestment in Czech Republic occurred in
the second quarter of 2015. Excluding such effects, on a
homogeneous basis, refining throughput were up by 5%. Total throughputs in wholly-owned refineries were 18.37 mmtonnes, down by 2.13 mmtonnes, or 13.1% compared with 2014, determining a refinery utilization rate (ratio between throughputs and balanced capacity) of 94.7%. Approximately 20.4% of processed crude was supplied by Eni’s Exploration & Production segment, down by 4.8 percentage point from 2014 (25.2%). In the field of local development, as provided by stakeholder agreements, Eni continued the commitment to environmental protection and improvement, as well as, social and urban development projects, as defined by the conventions signed with the Municipality of Ferrera Erbognone and Sannazzaro de’ Burgondi. |
| Availability of refined products | (mmtonnes) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| ITALY | |||||||||||||||||
| At wholly-owned refineries | 18.99 | 16.24 | 18.37 | 2.13 | 13.1 | ||||||||||||
| Less input on account of third parties | (0.57 | ) | (0.58 | ) | (0.38 | ) | 0.20 | 34.5 | |||||||||
| At affiliated refineries | 4.14 | 4.26 | 4.73 | 0.47 | 11.0 | ||||||||||||
| Refinery throughputs on own account | 22.56 | 19.92 | 22.72 | 2.80 | 14.1 | ||||||||||||
| Consumption and losses | (1.23 | ) | (1.33 | ) | (1.52 | ) | (0.19 | ) | (14.3 | ) | |||||||
| Products available for sale | 21.33 | 18.59 | 21.20 | 2.61 | 14.0 | ||||||||||||
| Purchases of refined products and change in inventories | 5.73 | 7.19 | 6.22 | (0.97 | ) | (13.5 | ) | ||||||||||
| Products transferred to operations outside Italy | (0.83 | ) | (0.73 | ) | (0.48 | ) | 0.25 | 34.2 | |||||||||
| Consumption for power generation | (0.55 | ) | (0.57 | ) | (0.41 | ) | 0.16 | 28.1 | |||||||||
| Sales of products | 25.68 | 24.48 | 26.53 | 2.05 | 8.4 | ||||||||||||
| OUTSIDE ITALY | |||||||||||||||||
| Refinery throughputs on own account | 4.82 | 5.11 | 3.69 | (1.42 | ) | (27.8 | ) | ||||||||||
| Consumption and losses | (0.22 | ) | (0.21 | ) | (0.23 | ) | (0.02 | ) | (9.5 | ) | |||||||
| Products available for sale | 4.60 | 4.90 | 3.46 | (1.44 | ) | (29.4 | ) | ||||||||||
| Purchases of refined products and change in inventories | 4.30 | 4.48 | 4.77 | 0.29 | 6.5 | ||||||||||||
| Products transferred from Italian operations | 0.83 | 0.73 | 0.48 | (0.25 | ) | (34.2 | ) | ||||||||||
| Sales of products | 9.73 | 10.11 | 8.71 | (1.40 | ) | (13.8 | ) | ||||||||||
| Refinery throughputs on own account | 27.38 | 25.03 | 26.41 | 1.38 | 5.5 | ||||||||||||
| of which: refinery throughputs of equity crude on own account | 5.93 | 5.81 | 5.04 | (0.77 | ) | (13.3 | ) | ||||||||||
| Total sales of refined products | 35.41 | 34.59 | 35.24 | 0.65 | 1.9 | ||||||||||||
| Crude oil sales | 0.18 | 0.33 | 0.27 | (0.06 | ) | (18.2 | ) | ||||||||||
| TOTAL SALES | 35.59 | 34.92 | 35.51 | 0.59 | 1.7 | ||||||||||||
Contents
Eni Integrated Annual Report |
|
57 | ||
Operating review Refining & Marketing |
| Marketing of
refined products In 2015, retail sales of refined products (35.24 mmtonnes) |
increased by 0.65 mmtonnes from 2014, up by 1.9%, mainly due to higher volumes sold to oil companies. |
| Product sales in Italy and outside Italy by market | (mmtonnes) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| Retail | 6.64 | 6.14 | 5.96 | (0.18 | ) | (2.9 | ) | |||||||
| Wholesale | 8.37 | 7.57 | 7.84 | 0.27 | 3.6 | |||||||||
| Petrochemical | 1.24 | 0.89 | 1.17 | 0.28 | 31.5 | |||||||||
| Other sales | 9.43 | 9.89 | 11.56 | 1.67 | 16.9 | |||||||||
| Sales in Italy | 25.68 | 24.49 | 26.53 | 2.04 | 8.3 | |||||||||
| Retail Rest of Europe | 3.05 | 3.07 | 2.93 | (0.14 | ) | (4.6 | ) | |||||||
| Wholesale Rest of Europe | 4.56 | 4.60 | 3.83 | (0.78 | ) | (16.7 | ) | |||||||
| Wholesale outside Italy | 0.10 | 0.43 | 0.43 | |||||||||||
| Other sales | 2.02 | 2.00 | 1.52 | (0.48 | ) | (24.2 | ) | |||||||
| Sales outside Italy | 9.73 | 10.10 | 8.71 | (1.39 | ) | (13.8 | ) | |||||||
| TOTAL SALES OF REFINED PRODUCTS | 35.41 | 34.59 | 35.24 | 0.65 | 1.9 | |||||||||
| Retail
sales in Italy In 2015, retail sales in Italy of 5.96 mmtonnes decreased by approximately 0.18 mmtonnes, or 2.9% compared to 2014, driven by increasing competitive pressure. Average gasoline and gasoil throughput (1,569 kliters) decreased by approximately 35 kliters from 2014. Eni’s retail market share for 2015 was 24.5%, down by one percentage point from 2014. As of December 31, 2015, Eni’s retail network in Italy consisted of 4,420 service stations, 172 stations less compared to December |
31, 2014 (4,592 service
stations). This reduction is due to the negative
contribution of acquisition/releases concessions (115
units), the closing of service stations with low
throughput (56 units) and the lack of renewal of 1
motorway concession. The "you & eni" loyalty program, launched in 2010, finished on January 2015. On April 2016, a new "you & eni" program has been launched, with a 2 years duration, addressed to customers that utilize served modality. |
| Retail and wholesales sales of refined products | (mmtonnes) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| Italy | 15.01 | 13.71 | 13.80 | 0.09 | 0.7 | |||||||||
| Retail sales | 6.64 | 6.14 | 5.96 | (0.18 | ) | (2.9 | ) | |||||||
| Gasoline | 1.96 | 1.71 | 1.60 | (0.11 | ) | (6.4 | ) | |||||||
| Gasoil | 4.33 | 4.07 | 3.96 | (0.11 | ) | (2.7 | ) | |||||||
| LPG | 0.32 | 0.32 | 0.36 | 0.04 | 12.5 | |||||||||
| Others | 0.03 | 0.04 | 0.04 | |||||||||||
| Wholesale sales | 8.37 | 7.57 | 7.84 | 0.27 | 3.6 | |||||||||
| Gasoil | 4.09 | 3.54 | 3.69 | 0.15 | 4.2 | |||||||||
| Fuel Oil | 0.24 | 0.12 | 0.12 | |||||||||||
| LPG | 0.30 | 0.28 | 0.22 | (0.06 | ) | (21.4 | ) | |||||||
| Gasoline | 0.25 | 0.30 | 0.38 | 0.08 | 26.7 | |||||||||
| Lubricants | 0.09 | 0.09 | 0.07 | (0.02 | ) | (22.2 | ) | |||||||
| Bunker | 1.00 | 0.91 | 1.07 | 0.16 | 17.6 | |||||||||
| Jet fuel | 1.58 | 1.59 | 1.60 | 0.01 | 0.6 | |||||||||
| Other | 0.82 | 0.74 | 0.69 | (0.05 | ) | (6.8 | ) | |||||||
| Outside Italy (retail+wholesale) | 7.71 | 8.10 | 7.19 | (0.91 | ) | (11.2 | ) | |||||||
| Gasoline | 1.73 | 1.80 | 1.51 | (0.29 | ) | (16.1 | ) | |||||||
| Gasoil | 4.23 | 4.48 | 3.98 | (0.50 | ) | (11.2 | ) | |||||||
| Jet fuel | 0.51 | 0.56 | 0.65 | 0.09 | 16.1 | |||||||||
| Fuel Oil | 0.22 | 0.18 | 0.17 | (0.01 | ) | (5.6 | ) | |||||||
| Lubricants | 0.10 | 0.10 | 0.10 | |||||||||||
| LPG | 0.51 | 0.55 | 0.51 | (0.04 | ) | (7.3 | ) | |||||||
| Other | 0.41 | 0.43 | 0.27 | (0.16 | ) | (37.2 | ) | |||||||
| 22.72 | 21.81 | 20.99 | (0.82 | ) | (3.8 | ) | ||||||||
Contents
| 58 | Eni Integrated Annual Report |
|
||
Refining & Marketing Operating review |
 Retail
sales in the Rest of Europe . |
Wholesale
and other sales Wholesale sales in Italy were 7.84 mmtonnes, up by approximately 0.27 mmtonnes, or 3.6% compared to the previous year, due to higher sales of bunkering fuel oil, gasoil and minor products, partially offset by lower sales of LPG and lubricants. Supplies of feedstock to the petrochemical industry were 1.17 mmtonnes, up by 31.5% compared to the previous reporting period. This reflected higher naphtha supply following partial recovery of demand in the industrial segment. Wholesale sales in the Rest of Europe were approximately 3.83 mmtonnes, down by 16.7% from 2014, due to lower sales in the Eastern Europe market following the above-mentioned divestments. Other sales in Italy and outside Italy were 13.08 mmtonnes, up by 1.19 mmtonnes, or 10%, mainly due to higher volumes sold to oil companies. In the field of lubricants, Eni launched a new line of products for motorcycles (i-Ride) able to guarantee high performance and reliability of engines for which is designed. Capital expenditure In 2015, capital expenditure amounted to euro 408 million and mainly regarded: (i) refining activities in Italy and outside Italy (euro 282 million) aiming fundamentally at plants improving, as well as initiatives in the field of health, security and environment; (ii) upgrading and rebranding of the refined product retail network in Italy (euro 75 million) and in the Rest of Europe (euro 51 million). |
| Capital expenditure | (euro million) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| Refining | 497 | 362 | 282 | (80 | ) | (22.1 | ) | |||||||
| Marketing | 175 | 175 | 126 | (49 | ) | (28.0 | ) | |||||||
| 672 | 537 | 408 | (129 | ) | (24.0 | ) | ||||||||
Contents
| Saipem transaction In the last months of 2015, Eni defined a complex transaction to restructure the share ownership of the listed subsidiary Saipem through the entry of a new shareowner, obtaining the reimbursement of intercompany loans, in line with the Group strategy aimed to: - focus on its upstream core business, by making
available additional financial sources to be reinvested
in the development of the considerable mineral resources
recently discovered; On January 22, 2016, following the fulfillment of all
the conditions precedent, among which the consensus of
Consob to the subscription of the share capital increase
in Saipem, was closed the sale of 12.503% of Eni’s
interest in the share capital of Saipem to Fondo
Strategico Italiano (FSI). The transaction refers to No.
55,176,364 Saipem shares at an average price of euro 8.4
per share. Contextually, Eni and FSI entered into the Shareholders’ Agreement signed on October 27, 2015, by virtue of which they intended to establish the terms and conditions that shall govern, from the closing date onwards, their relations as shareholders of Saipem. Each of Eni and FSI will contribute to the Shareholders’ Agreement, for its entire duration, an equal number of Saipem shares, which will not exceed 12.503% of the Company’s ordinary share capital (therefore up to a total amount slightly above 25% of Saipem ordinary share capital). The Shareholders’ Agreement will enter into force on the closing date of the Sale and Purchase Agreement, for a period of three years, with automatic renewal for a further period of three years, unless terminated by notice. The key elements of the Shareholders’ Agreement
provides, inter alia: . |
shares not contributed to
the Shareholders’ Agreement; c) obligations to engage in consultation before exercising voting rights and, to the extent permitted by law, voting commitments (also regarding Saipem shares not contributed to the Shareholders’ Agreement) in relation to all resolutions submitted to the Shareholders Meetings of Saipem and certain resolutions of Saipem’s Board of Directors that are conventionally considered relevant, among which the approval of the industrial plan. As defined by the Shareholders’ Agreement and following the transaction, Eni and FSI jointly control Saipem. Eni and FSI have undertaken towards Saipem an
irrevocable obligation to subscribe pro-rata the capital
increase for euro 3.5 billion. Considering, that the transactions disclosed above were defined after the end of 2015, in the financial statements of 2015 Saipem is still fully consolidated and represented as "discontinued operation" based on the guidelines of IFRS 5 on certain disposal assets. Therefore, economic and financial impacts of Saipem transaction will be recorded in the 2016 Eni statutory reporting, as described below: - considering that the governance structure defined in
the Shareholders Agreement established joint control over
Saipem, Eni will derecognize the former subsidiary from
its consolidated accounts’ assets and liabilities,
revenues and expenses, effective January 1, 2016. The
residual stake in Saipem of 30.42% will be evaluated on
the base of the equity accounting method, considering the
book value to be equal to the share price at the closing
date of the transaction (euro 4.2 per share) equal to an
overall value of euro 564 million and a loss to recognize
through profit and loss of euro 441 million (resulting
from the difference between the fair value and the book
value at December 31, 2015); At the end of February 2016, following the subscription of capital increase and third-party refinancing, Saipem reimbursed integrally intercompany loans. |
Contents
| 60 | Eni Integrated Annual Report |
|
||
Discontinued operations Operating review |
| As of the date of the
transaction agreement, Eni is subjected to the de facto
control of the MEF (Italian Ministry of Economy and
Finance). FSI is also indirectly controlled by MEF.
Therefore the transaction is a transaction between Eni
and one of its related parties, deemed "more
relevant" for the purpose of the Consob Regulation
No. 17721/2010, as amended ("Related Parties
Regulation") and of the related parties procedure
adopted by Eni ("Related Parties Procedure").
The transfer of the Transferred Stake to FSI also
represents a significant transfer1 transaction
within the meaning of Article 71 of the Consob Regulation
No. 11791/1999 ("Issuers’ Regulation"). For further information see the information document filled on November 3, 2015 published in accordance to Article 5 of Consob regulation and Article 71 of the Consob regulation No. 11971/1999 available on the website eni.com. Description of the company involved in the
Transaction |
of offshore and onshore
projects, focusing on the toughest and most
technologically challenging projects, which are conducted
in remote areas, in deep water and which involve complex
hydrocarbon extraction, in which it leverages its
distinctive competences and execution skills. The company has a large and diversified orders portfolio, consisting in many ultra-deep water projects, extreme condition pipeline laying, as well as relevant and complex onshore projects, in which it leverages the competitive advantage it has acquired from its technologically advanced fleet and its distinctive know-how. Saipem is a global contractor, with a strong local presence in strategic and emerging markets such as West Africa, North Africa, the Middle East, and South East Asia. In 2015, new contracts awarded to Saipem amounted to euro 6,515 million. The relevant ones related to: - an Engineering & Construction contract on behalf
of North Caspian Operating Company for the Kashagan field
project, which includes the construction of two
95-kilometer pipelines, which will connect the island D
located in the Caspian Sea to the Karabatan in
Kazakhstan; |
| Orders acquired | (euro million) | 2013 | 2014 | 2015 | Change | % Ch. | ||||||||
| 10,062 | 17,971 | 6,515 | (11,456 | ) | (63.7 | ) | ||||||||
| Engineering & Construction Offshore | 5,581 | 10,043 | 4,479 | (5,564 | ) | (55.4 | ) | |||||||
| Engineering & Construction Onshore | 2,193 | 6,354 | 1,386 | (4,968 | ) | (78.2 | ) | |||||||
| Offshore drilling | 1,401 | 722 | 234 | (488 | ) | (67.6 | ) | |||||||
| Onshore drilling | 887 | 852 | 416 | (436 | ) | (51.2 | ) | |||||||
| As of December 31, 2015, order backlog was euro 15,846 million (euro 22,147 million at December 31, 2014). The order backlog was negatively impacted by the cancellation of outstanding | orders for the South Stream project (euro 1,232 million), which was terminated by the client under a termination for convenience provision received on July 8, 2015. |
| Order backlog | (euro million) | Dec. 31, 2013 | Dec. 31, 2014 | Dec. 31, 2015 | Change | % Ch. | ||||||||
| 17,065 | 22,147 | 15,846 | (6,301 | ) | (28.5 | ) | ||||||||
| Engineering & Construction Offshore | 8,320 | 11,161 | 7,518 | (3,643 | ) | (32.6 | ) | |||||||
| Engineering & Construction Onshore | 4,114 | 6,703 | 5,301 | (1,402 | ) | (20.9 | ) | |||||||
| Offshore drilling | 3,390 | 2,920 | 2,010 | (910 | ) | (31.2 | ) | |||||||
| Onshore drilling | 1,241 | 1,363 | 1,017 | (346 | ) | (25.4 | ) | |||||||
(1) The Management System Guideline "Transactions involving the interests of the directors and statutory auditors and Transactions with Related Parties" was approved by Eni’s Board on November 18, 2010 and amended on January 19, 2012. The Document is available on the website www.eni.com, section: "Governance - Related Parties".
Contents
Eni Integrated Annual Report |
|
61 | ||
Operating review Discontinued operations |
Versalis
| As far as the chemical
business managed by Eni’s wholly-owned subsidiary
Versalis SpA is concerned, at December 31, 2015,
negotiations were underway to define an agreement with an
industrial partner who, by acquiring a controlling stake
of Versalis, would support Eni in implementing the
industrial plan designed to upgrade this business. Therefore, effective for the full year, likewise Saipem, Versalis’ assets and liabilities, revenues and expenses and cash flow have been classified as discontinued operations. In addition, Eni’s net assets in Versalis have been aligned to the lower of their carrying amount and their fair value based on the transaction that is underway. Description of the
business under disposal |
technologies supported by
the experience it gained in production and R&D. This
approach favored the optimization of the design of
equipment and plants, of their performance, of
proprietary catalysts and other products that allowed it
to achieve excellence in all technologies in the specific
business areas in order to compete in markets worldwide.
A key role is played by the most innovative proprietary
catalysts, particularly those based on zeolites developed
by Versalis as building blocks of some of its most
advanced technologies and available worldwide. The principal objective of basic petrochemicals is granting the adequate availability of monomers (ethylene, butadiene and benzene) covering the needs of further production processes: in particular olefins production is strictly linked with the polyethylene and elastomers business, aromatics grant the benzene availability necessary to produce intermediate products used in the production of resins, artificial fibers and polystyrene. In the polymers business Versalis is one of the most relevant European producers of elastomers, where it is present in almost all the relevant sectors (in particular, in the automotive industry), polystyrene and polyethylene, whose most relevant use is in flexible packaging. In 2015, production of petrochemical products amounted to 5,700 ktonnes, increasing by 417 ktonnes compared to the previous year, thanks to the recovery in products demand. |
| (ktonnes) | 2013 | 2014 | 2015 | Change | % Ch. | |||||||||
| Intermediates | 3,462 | 2,972 | 3,334 | 362 | 12.2 | |||||||
| Polymers | 2,355 | 2,311 | 2,366 | 55 | 2.4 | |||||||
| Production | 5,817 | 5,283 | 5,700 | 417 | 7.9 | |||||||
Contents
| Eni’s results of
operations and cash flow as at and for the twelve months
ended December 31, 2015 have been prepared: (i) on a
consolidated basis; and (ii) presenting separately
continuing operations from discontinued operations, in
accordance to IFRS 5. Discontinued operations comprise: - The E&C operating segment which is managed by Eni’s former subsidiary Saipem SpA. On January 22, 2016, there was the closing of the agreements signed on October 27, 2015 with the Fondo Strategico Italiano (FSI). Those include the sale of a 12.503% stake of the share capital of Saipem to FSI and the concurrent entrance into force of the shareholder agreement with Eni, which was intended to establish joint control over the former Eni subsidiary. Therefore effective for the full year, Saipem revenues and expenses and cash flow have been classified as discontinued operations and its assets and liabilities have been classified as held for sale. In addition as provided by IFRS 5, Eni’s net assets in Saipem have been aligned to the lower of their carrying amount and fair value given by the share price at the reporting date. - The chemical segment managed by Eni’s wholly-owned subsidiary Versalis SpA. As of the reporting date, negotiations are underway to define an agreement with an industrial partner who, by acquiring a controlling stake of Versalis, would support Eni in implementing the industrial plan designed to upgrade this business. Therefore, effective for the full year, likewise Saipem, Versalis revenues and expenses and cash flow have been classified as discontinued operations and its assets and liabilities have been classified as held for sale. In addition, as provided by IFRS 5, Eni’s net assets in Versalis have been aligned to the lower of their carrying amount and their fair value based on the transaction that is underway. Consequently, the review of the financial performance of the FY2015 mainly focuses on the results of the continuing |
operations. In this regard,
taking into consideration that gains and losses
pertaining to the discontinued operations include
according to the accounting provided by IFRS 5 only those
resulting from transactions with third parties, the
results of the continuing operations do not fully
illustrate the underlying performance given the
elimination of gains and losses on intercompany
transactions with the discontinued operations. The same
is true for the performance of the discontinued
operations. The bigger are the intercompany transactions,
the larger is that sort of misrepresentation. In particular, the accounting of the E&C segment as discontinued operations according to IFRS 5 criteria yields a benefit to the continuing operations due to the elimination of the costs incurred towards Saipem for the execution of contract works commissioned by Eni’s Group companies for maintenance and construction of assets (plants and other infrastructures). On the contrary, the accounting of the chemical segment as discontinued operations affects the results of the continuing operations due to the elimination of revenues relating to the supply of oil-based petrochemical feedstock and other plant utilities to Versalis, mainly from the Group’s R&M segment. Because of this, in order to obtain a better comparison of base Group performance across reporting periods and to understand in a better way underlying industrial trends, throughout this financial review management has presented measures of the underlying performance of the continuing operations on a standalone basis by reinstating the effects of the elimination of intercompany transactions. These performance measures by excluding gains and losses of the discontinued operations earned from both third parties and the Group’s continuing operations, actually determine the derecognition of the two disposal group. These measures are: standalone adjusted operating profit, standalone adjusted net profit and standalone cash flow from operations1. |
(1) Management assesses the underlying
performance of the Group’s business segments looking at
certain Non-GAAP measures of results from operations. Those
Non-GAAP measures are the adjusted operating profit and the
adjusted net profit, which exclude from reported operating profit
and reported net profit the impact of extraordinary gains and
losses ("special items") pre-tax and post-tax
respectively, as well as of the profit/loss on stock. Special
items mainly comprise asset impairment losses, gains on disposal,
restructuring charges, environmental and other provisions, the
fair value of certain derivative contracts lacking the formal
criteria to be accounted as hedges and write-downs of deferred
tax assets. The profit/loss on stock is the difference between
the current costs of supplies and the cost determined in
accordance to the weighted-average cost accounting method for the
evaluation of inventories as provided by IFRSs.
Furthermore, considering the process to dispose of the two
business segments "E&C" and "Chemical",
which is underway at the reporting date and the related
accounting of the two disposal groups as discontinued operations
in accordance to IFRS 5, management has presented in this press
release additional Non-GAAP measures to assess the performance of
the continuing operations. Those measures are the standalone
adjusted operating profit and the standalone adjusted net profit,
which reinstate in the results of the continuing operations the
effect related to the elimination of profit on intercompany
transactions with the discontinued operations. Those Non-GAAP
measures obtain a representation of the performance of the
continuing operations anticipating the effect of the
derecognition of the discontinued operations. A corresponding
alternative performance measure has been presented for the cash
flow from operating activities (operating cash flow on a
standalone basis).
Contents
Eni Integrated Annual Report |
|
63 | ||
Financial review |
| 2015 results In 2015, Eni reported a net
loss pertaining to continuing operations of euro
7,680 million, considerably down compared to the previous
year (closed in substantial break-even). A prolonged
slide in crude oil prices has negatively affected the
Group’s performance, impacting results from
operations and the value of assets. Eni’s management has implemented certain initiatives to mitigate the negative effect of low oil prices on profitability and cash flow. These initiatives include the reduction of E&P operating expenses and the curtailment of capital expenditure by carefully selecting exploration plays, rescheduling and re-phasing large development activities and renegotiating supply contracts for plants and other E&P infrastructures, as well as leveraging oilfield services rates on the deflationary pressure induced by the decline in crude oil prices. This reduction in capital expenditure only had a modest impact on hydrocarbon production, which grew by 10% to 1.760 kboe/d. The production plateau has been the highest since 2010, on yearly basis. The Refining & Marketing segment returned to underlying profitability supported by plant optimizations and an ongoing margin recovery. The G&P segment almost achieved operating profit break-even, net of extraordinary charges related to the unfavorable outcome of commercial arbitration, and in spite of the postponement of the recognition of gains on the renegotiations of certain long-term supply contracts. Finally, G&A expenses were reduced by euro 0.6 billion. Net loss for 2015 was significantly affected by an increased tax rate driven by a deteriorating price scenario in the E&P segment, which resulted in the segment’s taxable profit earned in PSA contracts, which, although more resilient in a low-price environment, nonetheless bear higher-than-average rates of tax and a higher incidence of non-deductible expenses on the pre-tax profit that has been lowered by the scenario. In addition, the tax rate was impacted by lower recognition of deferred tax assets relating operating losses |
due to a reduced
profitability outlook (euro 1,058 million). The Group tax
rate was also impacted by the write-off of Italian
deferred tax assets of euro 885 million in the full year
due to projections of lower future taxable profit at
Italian subsidiaries and the reduction of the statutory
tax rate from 27.5% to 24%, which was considered as
substantially enacted at the reporting date. Net
loss attributable to Eni’s shareholders
including both continuing operations and discontinued
operations amounted to euro 8,783 million for the FY2015.
The loss of the discontinued operations pertaining to
Eni’s shareholders was affected by the recognition
of impairment losses on the disposal groups Saipem and
Versalis, which net assets were aligned to the lower of
their carrying amounts and fair value. Eni’s net
assets in Saipem and Versalis were aligned respectively
to the share price at the reporting date and the likely
outcome of the industrial agreement, which is being
evaluated in the negotiations currently underway,
resulting in an overall impairment charge of euro 1,969
million. Partly offsetting, a fair-valued derivative gain
of euro 49 million was recorded for Saipem due to the
difference between the transaction price (euro 8.39 per
share) and the market price at the reporting date (euro
7.49 per share) for the stake disposed of to FSI. In 2015, adjusted operating profit of continuing
operations on a standalone basis was euro 4,104
million, down by euro 7,338 million, or by 64.1%. The
decrease was driven mainly by the upstream segment (down
by euro 7,443 million, or 64.6%) due to the effects of
scenario/exchange rate, which impacted by euro 8.8
billion, partially offset by production growth and
efficiency gains of euro 2.2 billion, while lower
one-time effects associated with gas contract
renegotiations negatively affected operating profit by
euro 0.7 billion. Special items of the operating profit of continuing operations (net charges of euro 5,762 million) comprised: (i) impairment losses |
Contents
| 64 | Eni Integrated Annual Report |
|
||
Financial review |
Adjusted results (*)
| 2013 | (euro million) | 2014 | 2015 | Change | % Ch. | ||||||||||||||
| 11,280 | Adjusted operating profit (loss) - continuing operations | 10,447 | 3,795 | (6,652 | ) | (63.7 | ) | |||||||||
| 1,856 | Reinstatement of intercompany transactions vs. disc. Op. | 995 | 309 | |||||||||||||
| 13,136 | Adjusted operating profit (loss) - continuing operations on a standalone basis | 11,442 | 4,104 | (7,338 | ) | (64.1 | ) | |||||||||
| 3,472 | Net profit (loss) attributable to Eni’s shareholders - continuing operations | 101 | (7,680 | ) | (7,781 | ) | .. | |||||||||
| 291 | Exclusion of inventory holding (gains) losses | 890 | 561 | |||||||||||||
| (1,264 | ) | Exclusion of special items | 1,209 | 6,421 | ||||||||||||
| 2,499 | Adjusted net profit (loss) attributable to Eni’s shareholders - continuing operations | 2,200 | (698 | ) | (2,898 | ) | .. | |||||||||
| 1,355 | Reinstatement of intercompany transactions vs. disc. Op. | 1,654 | 1,032 | |||||||||||||
| 3,854 | Adjusted net profit (loss) attributable to Eni’s shareholders on a standalone basis | 3,854 | 334 | (3,520 | ) | (91.3 | ) | |||||||||
| 63.2 | Tax Rate (%) | 65.3 | 93.0 | |||||||||||||
(*) Adjusted results from continuing operations exclude as usual the items "profit/loss on stock" and extraordinary gains and losses (special items), while they reinstate the effects relating to the elimination of gains and losses on intercompany transactions with sectors which are in the disposal phase, E&C and Chemical, represented as discontinued operations under the IFRS 5.
| (euro 4,826 million) mainly in the E&P segment, relating to oil&gas properties driven by the impact of a lower price environment on the expected future cash flows in the medium and long-term. The most notable impairments refer to certain assets, which were acquired by the Group following business combinations in previous reporting periods (Algeria, Congo and Turkmenistan) and to CGUs which are currently operating in high-cost areas (USA, UK, Norway and Angola). Furthermore, investments made for compliance and stay-in-business purposes were written off at cash generating units previously devaluated in the Refining & Marketing business. Finally, impairment losses were recorded at the Group power plants in the G&P segment due to a weak margins scenario; (ii) net charges in the Gas & Power segment due to an estimate revision of revenues accrued on the sale of natural gas (euro 346 million) and electricity (euro 138 million) to retail customers and the establishment of a provision for these revenues (euro 130 million for gas sale and euro 96 million for electricity); (iii) the effects of the fair-value evaluation of | certain commodity
derivatives lacking the formal criteria to be accounted
as hedges under IFRS (charge of euro 164 million); (iv)
environmental provisions (euro 204 million) and
provisions for redundancy incentives (euro 27 million). Non-operating special items mainly related to income taxes related to the tax effects of special gains/charges in operating profit, the write-off of certain deferred tax assets (euro 851 million) due to projections of lower future taxable profit at Italian subsidiaries and the reduction of the statutory tax rate. In addition, similar adjustments to deferred tax assets were recognized outside Italy at E&P subsidiaries (euro 860 million). These charges were partly offset by the reversal of deferred taxation due to changes in the United Kingdom tax law. The breakdown of the adjusted net profit from continuing operations is shown in the table below: |
| 2013 | (euro million) | 2014 | 2015 | Change | % Ch. | ||||||||||||||
| 5,950 | Exploration & Production | 4,423 | 752 | (3,671 | ) | (83.0 | ) | |||||||||
| (239 | ) | Gas & Power | 86 | (168 | ) | (254 | ) | .. | ||||||||
| (246 | ) | Refining & Marketing | (41 | ) | 282 | 323 | .. | |||||||||
| (689 | ) | Corporate and other activities | (852 | ) | (663 | ) | 189 | 22.2 | ||||||||
| (1,854 | ) | Impact of unrealized intragroup profit elimination (a) | (873 | ) | (296 | ) | 577 | |||||||||
| 2,922 | Adjusted net profit (loss) - continuing operations | 2,743 | (93 | ) | (2,836 | ) | .. | |||||||||
| attributable to: | ||||||||||||||||
| 423 | - non-controlling interest | 543 | 605 | 62 | 11.4 | |||||||||||
| 2,499 | - Eni’s shareholders | 2,200 | (698 | ) | (2,898 | ) | .. | |||||||||
(a) This item concerned mainly intragroup sales of commodities, services and capital goods recorded in the assets of the purchasing business segment as of end of the period.
| The Exploration & Production segment reported an adjusted operating profit of euro 4,108 million, down by euro 7,443 million, or 64.4% y-o-y. This change was driven by lower oil and gas realizations in dollar terms (down by 47.8% and 33.8%, respectively), reflecting the lower price for the marker | Brent (down by 47%) and lower gas prices in Europe and in the United States. The price effect was only partially offset by a favorable exchange rate environment, higher production volumes, opex efficiencies and lower exploration expenses. |
Contents
Eni Integrated Annual Report |
|
65 | ||
Financial review |
Eni Integrated Annual Report / Financial review
| Adjusted net profit amounted
to euro 752 million, decreasing by euro 3,671 million, or
83% from 2014, due to lower operating performance and an
increased adjusted tax rate (81.5%) due to: (i) the
recognition of a major part of the positive pre-tax
results in PSAs contracts which, although more resilient
in a low-price environment nonetheless, bear higher-than-
average rates of tax; (ii) a higher incidence of
non-deductible expenses on the pre-tax profit that has
been lowered by the scenario. Excluding the impact of the higher incidence on pre-tax profit of certain non-deductible expenses, because this incidence is expected to prospectively come down due to the effect of lower amortization charges going forward as a result of the impairment losses recorded in 2015 driven by the price outlook, and also restating the Group operating profit in accordance with the successful-effort-method accounting of exploration expenses, net of impaired exploration projects, the E&P tax rate has been re-determined in 70% and 60% for 2015 and 2014, respectively. In 2015, taxes paid represent approximately 34% of cash flow by operating activities of the E&P segment before changes in working capital and income taxes paid, slightly lower than in 2014. |
The Gas & Power
segment reported an adjusted operating loss of euro 126
million, down by euro 294 million from an adjusted
operating profit of euro 168 million in 2014. The change
reflected the one off economic benefits associated to
certain contracts renegotiation recorded in the fourth
quarter of 2014 as well as the negative outcome of a
commercial arbitration in the fourth quarter of 2015. The
Gas & Power segment reported an adjusted net loss of
euro 168 million in the full year 2015, down by euro 254
million compared to the euro 86 million profit reported
in the same period of a year ago due to the weaker
operating performance and lower results of
equity-accounted entities. The Refining & Marketing segment reported an adjusted operating profit of euro 387 million, up by euro 452 million from the adjusted net loss of euro 65 million reported in 2014. This strong performance was driven by an improved refining margin scenario and efficiency and optimization gains, which helped lower margin to around $5 per barrel, anticipating the EBIT break-even of the refining business to 2015 versus an original guidance for the year 2017 indicated in the 2015-2018 strategic plan. |
Capital expenditure
| 2013 | (euro million) | 2014 | 2015 | Change | % Ch. | ||||||||||||||
| 10,475 | Exploration & Production | 10,524 | 10,234 | (290 | ) | (2.8 | ) | ||||||||||
| 109 | - acquisition of proved and unproved properties | ||||||||||||||||
| 1,669 | - exploration | 1,398 | 820 | ||||||||||||||
| 8,580 | - development | 9,021 | 9,341 | ||||||||||||||
| 117 | - other expenditure | 105 | 73 | ||||||||||||||
| 229 | Gas & Power | 172 | 154 | (18 | ) | (10.5 | ) | ||||||||||
| 672 | Refining & Marketing | 537 | 408 | (129 | ) | (24.0 | ) | ||||||||||
| 211 | Corporate and other activities | 113 | 64 | (49 | ) | .. | |||||||||||
| (3 | ) | Impact of unrealized intragroup profit elimination | (82 | ) | (85 | ) | (3 | ) | |||||||||
| 11,584 | Capital expenditure - continuing operations | 11,264 | 10,775 | (489 | ) | (4.3 | ) | ||||||||||
| 1,216 | Capital expenditure - discontinued operations | 976 | 781 | (195 | ) | (20.0 | ) | ||||||||||
| 12,800 | Capital expenditure | 12,240 | 11,556 | (684 | ) | (5.6 | ) | ||||||||||
| In 2015, capital
expenditure of continuing operations amounted to euro
10,775 million (euro 11,264 million in 2014) and mainly
related to: - development activities deployed mainly in Angola, Norway, Egypt, Kazakhstan, Congo, Indonesia, Italy and the United States and exploratory activities of which 97% was spent outside Italy, primarily in Egypt, Libya, Cyprus, |
Gabon, Congo, the United
States, the United Kingdom and Indonesia; - refining activity (euro 282 million) with projects designed to improve the conversion rate and flexibility of refineries, as well as the upgrade of the refined product retail network (euro 126 million); - initiatives to improve flexibility of the combined cycle power plants (euro 69 million). |
Contents
| 66 | Eni Integrated Annual Report |
|
||
Financial review |
Sources and uses of cash
| The Company’s cash
requirements for capital expenditures, buy-back program,
dividends to shareholders, and working capital were
financed by a combination of funds generated from
operations, borrowings and divestments. In 2015, net cash provided by operating activities from continuing operations amounted to euro 12,189 million and was impacted by the eliminations of intercompany flows with discontinued operations. Proceeds from disposals were euro 2,258 million and mainly related to an interest in Snam due to exercise of the conversion right by bondholders (euro 911 million), an interest in Galp (euro 658 million) and the divestment of non-strategic assets mainly in the Exploration & Production business. These inflows funded part of capital expenditure (euro 10,775 million), other changes relating to capital expenditure and the payment of Eni’s dividend (balance dividend for fiscal 2014 and the 2015 interim dividend totaling euro 3,457 million). |
When considering the cash
flow of discontinued operations, the Group’s net
debt increased by euro 3,178 million to euro 16,863
million, net of negative exchange rate differences and
the reclassification of Saipem net cash in the
discontinued operations. Net cash provided by operating activities from continuing operations on a standalone basis was euro 12,189 million for 2015 and it fully funded capital expenditure. The Group cash flow performance was excellent (down by 15% from 2014) in spite of sharply lower oil prices. This result was driven by optimization initiatives in working capital performed mainly in the G&P segment, with the substantial recovery of prepaid gas volumes and other renegotiation benefits, and in the R&M segment as well as in corporate activities. Non-recurring effects of the working capital positively influenced cash flow by approximately euro 2.2 billion. |
Profit and loss account
| 2013 | (euro million) | 2014 | 2015 | Change | % Ch. | ||||||||||||||
| 98,547 | Net sales from operations | 93,187 | 67,740 | (25,447 | ) | (27.3 | ) | ||||||||||
| 1,117 | Other income and revenues | 1,039 | 1,205 | 166 | 16.0 | ||||||||||||
| (80,765 | ) | Operating expenses | (76,639 | ) | (56,761 | ) | 19,878 | 25.9 | |||||||||
| (71 | ) | Other operating income (expense) | 145 | (485 | ) | (630 | ) | .. | |||||||||
| (10,961 | ) | Depreciation, depletion, amortization and impairments | (10,147 | ) | (14,480 | ) | (4,333 | ) | (42.7 | ) | |||||||
| 7,867 | Operating profit (loss) | 7,585 | (2,781 | ) | (10,366 | ) | .. | ||||||||||
| (999 | ) | Finance income (expense) | (1,181 | ) | (1,323 | ) | (142 | ) | (12.0 | ) | |||||||
| 6,083 | Net income from investments | 469 | 124 | (345 | ) | (73.6 | ) | ||||||||||
| 12,951 | Profit (loss) before income taxes | 6,873 | (3,980 | ) | (10,853 | ) | .. | ||||||||||
| (9,055 | ) | Income taxes | (6,681 | ) | (3,147 | ) | 3,534 | 52.9 | |||||||||
| 69.9 | Tax rate (%) | 97.2 | .. | .. | |||||||||||||
| 3,896 | Net profit (loss) - continuing operations | 192 | (7,127 | ) | (7,319 | ) | .. | ||||||||||
| 1,063 | Net profit (loss) - discontinued operations | 658 | (2,251 | ) | (2,909 | ) | .. | ||||||||||
| 4,959 | Net profit (loss) | 850 | (9,378 | ) | (10,228 | ) | .. | ||||||||||
| attributable to: | |||||||||||||||||
| 5,160 | Eni’s shareholders | 1,291 | (8,783 | ) | (10,074 | ) | .. | ||||||||||
| 3,472 | - continuing operations | 101 | (7,680 | ) | (7,781 | ) | .. | ||||||||||
| 1,688 | - discontinued operations | 1,190 | (1,103 | ) | (2,293 | ) | .. | ||||||||||
| (201 | ) | Non-controlling interest | (441 | ) | (595 | ) | (154 | ) | 34.9 | ||||||||
| 424 | - continuing operations | 91 | 553 | 462 | .. | ||||||||||||
| (625 | ) | - discontinued operations | (532 | ) | (1,148 | ) | (616 | ) | .. | ||||||||
Contents
Eni Integrated Annual Report |
|
67 | ||
Financial review |
Non-GAAP measures
Reconciliation
of reported operating profit and reported net profit to results
on an adjusted standalone basis.
| Management evaluates Group
and business performance on the basis of adjusted
operating profit and adjusted net profit, which are
arrived at by excluding inventory holding gains or
losses, special items and, in determining the business
segments’ adjusted results, finance charges on
finance debt and interest income. The adjusted operating
profit of each business segment reports gains and losses
on derivative financial instruments entered into to
manage exposure to movements in foreign currency exchange
rates which impact industrial margins and translation of
commercial payables and receivables. Accordingly also
currency translation effects recorded through profit and
loss are reported within business segments’ adjusted
operating profit. The taxation effect of the items
excluded from adjusted operating or net profit is
determined based on the specific rate of taxes applicable
to each of them. The Italian statutory tax rate is
applied to finance charges and income. Adjusted operating
profit and adjusted net profit are non-GAAP financial
measures under either IFRS, or US GAAP. Management
includes them in order to facilitate a comparison of base
business performance across periods, and to allow
financial analysts to evaluate Eni’s trading
performance on the basis of their forecasting models. The
following is a description of items that are excluded
from the calculation of adjusted results. Inventory holding gain or loss is the difference between the cost of sales of the volumes sold in the period based on the cost of supplies of the same period and the cost of sales of the volumes sold calculated using the weighted average cost method of inventory accounting. Special items include certain significant income or charges pertaining to either: (i) infrequent or unusual events and transactions, being identified as non-recurring items under such circumstances; (ii) certain events or transactions which are not considered to be representative of the ordinary course of business, as in the case of environmental provisions, restructuring charges, asset impairments or write ups and gains or losses on divestments even though they occurred in past periods or are likely to occur in future ones; or (iii) exchange rate differences and derivatives relating to industrial activities and commercial payables and receivables, particularly exchange rate derivatives to manage commodity pricing formulas which are quoted in a currency other than the functional currency. Those items are reclassified in operating profit with a corresponding adjustment to net finance charges, |
notwithstanding the handling
of foreign currency exchange risks is made centrally by
netting off naturally-occurring opposite positions and
then dealing with any residual risk exposure in the
exchange rate market. As provided for in Decision No. 15519 of July 27, 2006 of the Italian market regulator (CONSOB), non recurring material income or charges are to be clearly reported in the management’s discussion and financial tables. Also, special items allow to allocate to future reporting periods gains and losses on re-measurement at fair value of certain non hedging commodity derivatives and exchange rate derivatives relating to commercial exposures, lacking the criteria to be designed as hedges, including the ineffective portion of cash flow hedges and certain derivative financial instruments embedded in the pricing formula of long-term gas supply agreements of the Exploration & Production segment. Finance charges or income related to net borrowings excluded from the adjusted net profit of business segments are comprised of interest charges on finance debt and interest income earned on cash and cash equivalents not related to operations. Therefore, the adjusted net profit of business segments includes finance charges or income deriving from certain segment-operated assets, i.e., interest income on certain receivable financing and securities related to operations and finance charge pertaining to the accretion of certain provisions recorded on a discounted basis (as in the case of the asset retirement obligations in the Exploration & Production segment). In consideration of the relevance of the discontinued operations on 2015 financial accounting, in order to remove the misrepresentation of IFRS 5 the adjusted performances exclude the above mentioned inventory holding gain or loss and the special items as well as gains and losses of the discontinued operations earned from both third parties and the Group’s continuing operations, actually determining the derecognition of the two disposal group. These measures are: standalone adjusted operating profit, standalone adjusted net profit and standalone cash flow from operations. In the following tables are represented: operating profit and adjusted net profit on a standalone basis and on single segment basis as well as the reconciliation of net profit attributable to Eni’s shareholders of continuing operations. It is also provided the reconciliation of operating cash flow. |
Contents
| 68 | Eni Integrated Annual Report |
|
||
Financial review |
| (euro million) |
| 2015 | DISCONTINUED OPERATIONS | |||||||||||||||||||||||
Exploration &
Production |
Gas & Power |
Refining &
Marketing |
Corporate and other
activities |
Engineering &
Construction |
Chemicals (a) |
Impact of
unrealized intragroup profit elimination |
GROUP |
Engineering &
Construction and Chemicals |
Consolidation
adjustments |
Total |
CONTINUING
OPERATIONS |
Reinstatement of
intercompany transactions vs. Discontinued operations |
CONTINUING
OPERATIONS - on standalone basis |
|||||||||||||||
| Reported operating profit (loss) | (144 | ) | (1,258 | ) | (552 | ) | (497 | ) | (694 | ) | (1,393 | ) | (23 | ) | (4,561 | ) | 2,087 | (307 | ) | 1,780 | (2,781 | ) | (2,474 | ) | |||||||||||||||||||||||
| Exclusion of inventory holding (gains) losses | 132 | 555 | 322 | 127 | 1,136 | (322 | ) | (322 | ) | 814 | 814 | ||||||||||||||||||||||||||||||||||||
| Exclusion of special items: | |||||||||||||||||||||||||||||||||||||||||||||||
| - environmental charges | 116 | 88 | 21 | 225 | (21 | ) | (21 | ) | 204 | 204 | |||||||||||||||||||||||||||||||||||||
| - asset impairments | 4,502 | 152 | 152 | 20 | 590 | 1,376 | 6,792 | (1,966 | ) | (1,966 | ) | 4,826 | 4,826 | ||||||||||||||||||||||||||||||||||
| - net gains on disposal of assets | (414 | ) | (5 | ) | 4 | 1 | (3 | ) | (417 | ) | 2 | 2 | (415 | ) | (415 | ) | |||||||||||||||||||||||||||||||
| - risk provisions | 226 | 7 | (10 | ) | (12 | ) | 211 | 12 | 12 | 223 | 223 | ||||||||||||||||||||||||||||||||||||
| - provision for redundancy incentives | 15 | 6 | 5 | 1 | 12 | 3 | 42 | (15 | ) | (15 | ) | 27 | 27 | ||||||||||||||||||||||||||||||||||
| - commodity derivatives | 12 | 90 | 72 | (6 | ) | (4 | ) | 164 | 10 | (10 | ) | 164 | 174 | ||||||||||||||||||||||||||||||||||
| - exchange rate differences and derivatives | (59 | ) | (9 | ) | 5 | (63 | ) | (5 | ) | 8 | 3 | (60 | ) | (68 | ) | ||||||||||||||||||||||||||||||||
| - other | 196 | 535 | 37 | 25 | (7 | ) | 786 | 7 | 7 | 793 | 793 | ||||||||||||||||||||||||||||||||||||
| Special items of operating profit (loss) | 4,252 | 1,000 | 384 | 128 | 597 | 1,379 | 7,740 | (1,976 | ) | (2 | ) | (1,978 | ) | 5,762 | 5,764 | ||||||||||||||||||||||||||||||||
| Adjusted operating profit (loss) | 4,108 | (126 | ) | 387 | (369 | ) | (97 | ) | 308 | 104 | 4,315 | (211 | ) | (309 | ) | (520 | ) | 3,795 | 309 | 4,104 | |||||||||||||||||||||||||||
| Net finance (expense) income (b) | (286 | ) | 11 | (12 | ) | (686 | ) | (5 | ) | 10 | (968 | ) | (5 | ) | 18 | 13 | (955 | ) | (973 | ) | |||||||||||||||||||||||||||
| Net income(expense) from investments (b) | 253 | (2 | ) | 72 | 285 | 17 | (3 | ) | 622 | (14 | ) | (14 | ) | 608 | 608 | ||||||||||||||||||||||||||||||||
| Income taxes (b) | (3,323 | ) | (51 | ) | (165 | ) | 107 | (212 | ) | (85 | ) | (47 | ) | (3,776 | ) | 297 | (62 | ) | 235 | (3,541 | ) | (3,479 | ) | ||||||||||||||||||||||||
| Tax rate (%) | 81.5 | (43.6 | ) | 36.9 | .. | 95.1 | 102.7 | 93.0 | |||||||||||||||||||||||||||||||||||||||
| Adjusted net profit (loss) | 752 | (168 | ) | 282 | (663 | ) | (297 | ) | 230 | 57 | 193 | 67 | (353 | ) | (286 | ) | (93 | ) | 353 | 260 | |||||||||||||||||||||||||||
| of which attributable to: | |||||||||||||||||||||||||||||||||||||||||||||||
| - non-controlling interest | (243 | ) | 848 | 605 | (679 | ) | (74 | ) (*) | |||||||||||||||||||||||||||||||||||||||
| - Eni’s shareholders | 436 | (1,134 | ) | (698 | ) | 1,032 | 334 | ||||||||||||||||||||||||||||||||||||||||
| Reported net profit (loss) attributable to Eni’s shareholders | (8,783 | ) | 1,103 | (7,680 | ) | (7,680 | ) | ||||||||||||||||||||||||||||||||||||||||
| Exclusion of inventory holding (gains) losses | 782 | (221 | ) | 561 | 561 | ||||||||||||||||||||||||||||||||||||||||||
| Exclusion of special items | 8,437 | (2,016 | ) | 6,421 | 6,421 | ||||||||||||||||||||||||||||||||||||||||||
| Reinstatement of intercompany transactions vs. Discontinued operations | 1,032 | ||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted net profit (loss) attributable to Eni’s shareholders | 436 | (1,134 | ) | (698 | ) | 334 | |||||||||||||||||||||||||||||||||||||||||
(a) Following the announced divestment plan,
Chemicals results previously consolidated in the "R&M
and Chemicals" sector, are presented separately and
accounted as discontinued operations.
(b) Excluding special items.
(*) Represents the reinstatement of fiscal impacts and does not
refer to non-controlling interest.
Contents
Eni Integrated Annual Report |
|
69 | ||
Financial review |
| (euro million) |
| 2014 | DISCONTINUED OPERATIONS | |||||||||||||||||||||||
Exploration &
Production |
Gas & Power |
Refining &
Marketing |
Corporate and other
activities |
Engineering &
Construction |
Chemicals (a) |
Impact of
unrealized intragroup profit elimination |
GROUP |
Engineering &
Construction and Chemicals |
Consolidation
adjustments |
Total |
CONTINUING
OPERATIONS |
Reinstatement of
intercompany transactions vs. Discontinued operations |
CONTINUING
OPERATIONS - on standalone basis |
|||||||||||||||
| Reported operating profit (loss) | 10,766 | 64 | (2,107 | ) | (518 | ) | 18 | (704 | ) | 398 | 7,917 | 686 | (1,018 | ) | (332 | ) | 7,585 | 8,603 | ||||||||||||||||||||||||||||||
| Exclusion of inventory holding (gains) losses | (119 | ) | 1,576 | 170 | (167 | ) | 1,460 | (170 | ) | (170 | ) | 1,290 | 1,290 | |||||||||||||||||||||||||||||||||||
| Exclusion of special items: | ||||||||||||||||||||||||||||||||||||||||||||||||
| - environmental charges | 111 | 41 | 27 | 179 | (27 | ) | (27 | ) | 152 | 152 | ||||||||||||||||||||||||||||||||||||||
| - asset impairments | 692 | 25 | 284 | 14 | 420 | 96 | 1,531 | (516 | ) | (516 | ) | 1,015 | 1,015 | |||||||||||||||||||||||||||||||||||
| - net gains on disposal of assets | (76 | ) | (2 | ) | 3 | 2 | 45 | (28 | ) | (47 | ) | (47 | ) | (75 | ) | (75 | ) | |||||||||||||||||||||||||||||||
| - risk provisions | (5 | ) | (42 | ) | 12 | 25 | (10 | ) | (25 | ) | (25 | ) | (35 | ) | (35 | ) | ||||||||||||||||||||||||||||||||
| - provision for redundancy incentives | 24 | 9 | (4 | ) | (25 | ) | 5 | 9 | (5 | ) | (5 | ) | 4 | 4 | ||||||||||||||||||||||||||||||||||
| - commodity derivatives | (28 | ) | (38 | ) | 38 | 9 | 3 | (16 | ) | (12 | ) | 12 | (16 | ) | (28 | ) | ||||||||||||||||||||||||||||||||
| - exchange rate differences and derivatives | 6 | 205 | 14 | 4 | 229 | (4 | ) | 11 | 7 | 236 | 225 | |||||||||||||||||||||||||||||||||||||
| - other | 172 | 64 | 25 | 30 | 12 | 303 | (12 | ) | (12 | ) | 291 | 291 | ||||||||||||||||||||||||||||||||||||
| Special items of operating profit (loss) | 785 | 223 | 466 | 75 | 461 | 187 | 2,197 | (648 | ) | 23 | (625 | ) | 1,572 | 1,549 | ||||||||||||||||||||||||||||||||||
| Adjusted operating profit (loss) | 11,551 | 168 | (65 | ) | (443 | ) | 479 | (347 | ) | 231 | 11,574 | (132 | ) | (995 | ) | (1,127 | ) | 10,447 | 995 | 11,442 | ||||||||||||||||||||||||||||
| Net finance (expense) income (b) | (287 | ) | 7 | (9 | ) | (564 | ) | (6 | ) | (3 | ) | (862 | ) | 9 | 30 | 39 | (823 | ) | (853 | ) | ||||||||||||||||||||||||||||
| Net income(expense) from investments (b) | 323 | 49 | 67 | (156 | ) | 21 | (3 | ) | 301 | (18 | ) | (18 | ) | 283 | 283 | |||||||||||||||||||||||||||||||||
| Income taxes (b) | (7,164 | ) | (138 | ) | (34 | ) | 311 | (185 | ) | 75 | (79 | ) | (7,214 | ) | 110 | (60 | ) | 50 | (7,164 | ) | (7,104 | ) | ||||||||||||||||||||||||||
| Tax rate (%) | 61.8 | 61.6 | .. | 37.4 | 65.5 | 72.3 | 65,3 | |||||||||||||||||||||||||||||||||||||||||
| Adjusted net profit (loss) | 4,423 | 86 | (41 | ) | (852 | ) | 309 | (278 | ) | 152 | 3,799 | (31 | ) | (1,025 | ) | (1,056 | ) | 2,743 | 1,025 | 3,768 | ||||||||||||||||||||||||||||
| of which attributable to: | ||||||||||||||||||||||||||||||||||||||||||||||||
| - non-controlling interest | 92 | 451 | 543 | (629 | ) | (86 | ) | |||||||||||||||||||||||||||||||||||||||||
| - Eni’s shareholders | 3,707 | (1,507 | ) | 2,200 | 1,654 | 3,854 | ||||||||||||||||||||||||||||||||||||||||||
| Reported net profit (loss) attributable to Eni’s shareholders | 1,291 | (1,190 | ) | 101 | 101 | |||||||||||||||||||||||||||||||||||||||||||
| Exclusion of inventory holding (gains) losses | 1,008 | (118 | ) | 890 | 890 | |||||||||||||||||||||||||||||||||||||||||||
| Exclusion of special items | 1,408 | (199 | ) | 1,209 | 1,209 | |||||||||||||||||||||||||||||||||||||||||||
| Reinstatement of intercompany transactions vs. Discontinued operations | 1,654 | |||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted net profit (loss) attributable to Eni’s shareholders | 3,707 | (1,507 | ) | 2,200 | 3,854 | |||||||||||||||||||||||||||||||||||||||||||
(a) Following the announced divestment plan,
Chemicals results previously consolidated in the "R&M
and Chemicals" sector, are presented separately and
accounted as discontinued operations.
(b) Excluding special items.
Contents
| 70 | Eni Integrated Annual Report |
|
||
Financial review |
| (euro million) |
| 2013 | DISCONTINUED OPERATIONS | |||||||||||||||||||||||
Exploration &
Production |
Gas & Power |
Refining &
Marketing |
Corporate and other
activities |
Engineering &
Construction |
Chemicals (a) |
Impact of
unrealized intragroup profit elimination |
GROUP |
Engineering &
Construction and Chemicals |
Consolidation
adjustments |
Total |
CONTINUING
OPERATIONS |
Reinstatement of
intercompany transactions vs. Discontinued operations |
CONTINUING
OPERATIONS - on standalone basis |
|||||||||||||||
| Reported operating profit (loss) | 14,868 | (2,923 | ) | (1,534 | ) | (736 | ) | (98 | ) | (727 | ) | 38 | 8,888 | 825 | (1,846 | ) | (1,021 | ) | 7,867 | 9,713 | ||||||||||||||||||||||||||||
| Exclusion of inventory holding (gains) losses | 192 | 220 | 213 | 91 | 716 | (213 | ) | (213 | ) | 503 | 503 | |||||||||||||||||||||||||||||||||||||
| Exclusion of special items: | ||||||||||||||||||||||||||||||||||||||||||||||||
| - environmental charges | (1 | ) | 93 | 52 | 61 | 205 | (61 | ) | (61 | ) | 144 | 144 | ||||||||||||||||||||||||||||||||||||
| - asset impairments | 19 | 1,685 | 633 | 19 | 44 | 2,400 | (44 | ) | (44 | ) | 2,356 | 2,356 | ||||||||||||||||||||||||||||||||||||
| - net gains on disposal of assets | (283 | ) | 1 | (9 | ) | (3 | ) | 107 | (187 | ) | (107 | ) | (107 | ) | (294 | ) | (294 | ) | ||||||||||||||||||||||||||||||
| - risk provisions | 7 | 292 | 31 | 4 | 334 | (4 | ) | (4 | ) | 330 | 330 | |||||||||||||||||||||||||||||||||||||
| - provision for redundancy incentives | 52 | 10 | 91 | 92 | 2 | 23 | 270 | (25 | ) | (25 | ) | 245 | 245 | |||||||||||||||||||||||||||||||||||
| - commodity derivatives | (2 | ) | 317 | 1 | (1 | ) | 315 | 1 | (1 | ) | 315 | 316 | ||||||||||||||||||||||||||||||||||||
| - exchange rate differences and derivatives | (2 | ) | (218 | ) | 30 | (5 | ) | (195 | ) | 5 | (9 | ) | (4 | ) | (199 | ) | (190 | ) | ||||||||||||||||||||||||||||||
| - other | (16 | ) | 23 | 3 | 3 | (109 | ) | (96 | ) | 109 | 109 | 13 | 13 | |||||||||||||||||||||||||||||||||||
| Special items of operating profit (loss) | (225 | ) | 2,109 | 842 | 194 | (1 | ) | 127 | 3,046 | (126 | ) | (10 | ) | (136 | ) | 2,910 | 2,920 | |||||||||||||||||||||||||||||||
| Adjusted operating profit (loss) | 14,643 | (622 | ) | (472 | ) | (542 | ) | (99 | ) | (387 | ) | 129 | 12,650 | 486 | (1,856 | ) | (1,370 | ) | 11,280 | 1,856 | 13,136 | |||||||||||||||||||||||||||
| Net finance (expense) income (b) | (264 | ) | 14 | (6 | ) | (567 | ) | (5 | ) | (2 | ) | (830 | ) | 7 | 16 | 23 | (807 | ) | (823 | ) | ||||||||||||||||||||||||||||
| Net income(expense) from investments (b) | 367 | 70 | 56 | 291 | 2 | 786 | (2 | ) | (2 | ) | 784 | 784 | ||||||||||||||||||||||||||||||||||||
| Income taxes (b) | (8,796 | ) | 299 | 176 | 129 | (151 | ) | 51 | (90 | ) | (8,382 | ) | 100 | (53 | ) | 47 | (8,335 | ) | (8,282 | ) | ||||||||||||||||||||||||||||
| Tax rate (%) | 59.7 | 55.6 | 41.7 | 66.5 | 74.0 | 63.2 | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted net profit (loss) | 5,950 | (239 | ) | (246 | ) | (689 | ) | (253 | ) | (338 | ) | 39 | 4,224 | 591 | (1,893 | ) | (1,302 | ) | 2,922 | 1,893 | 4,815 | |||||||||||||||||||||||||||
| of which attributable to: | ||||||||||||||||||||||||||||||||||||||||||||||||
| - non-controlling interest | (206 | ) | 629 | 423 | 538 | 961 | ||||||||||||||||||||||||||||||||||||||||||
| - Eni’s shareholders | 4,430 | (1,931 | ) | 2,499 | 1,355 | 3,854 | ||||||||||||||||||||||||||||||||||||||||||
| Reported net profit (loss) attributable to Eni’s shareholders | 5,160 | (1,688 | ) | 3,472 | 3,472 | |||||||||||||||||||||||||||||||||||||||||||
| Exclusion of inventory holding (gains) losses | 438 | (147 | ) | 291 | 291 | |||||||||||||||||||||||||||||||||||||||||||
| Exclusion of special items | (1,168 | ) | (96 | ) | (1,264 | ) | (1,264 | ) | ||||||||||||||||||||||||||||||||||||||||
| Reinstatement of intercompany transactions vs. Discontinued operations | 1,355 | |||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted net profit (loss) attributable to Eni’s shareholders | 4,430 | (1,931 | ) | 2,499 | 3,854 | |||||||||||||||||||||||||||||||||||||||||||
(a) Following the announced
divestment plan, Chemicals results previously consolidated in the
"R&M and Chemicals" sector, are presented
separately and accounted as discontinued operations.
(b) Excluding special items.
| 2013 | (euro million) | 2014 | 2015 | Change | |||||||||||
| 11,026 | Net cash provided by operating activities | 15,110 | 11,903 | (3,207 | ) | ||||||
| 1,894 | Net cash provided by operating activities - discontinued operations | 1,948 | 722 | (1,226 | ) | ||||||
| 9,132 | Net cash provided by operating activities - continuing operations | 13,162 | 11,181 | (1,981 | ) | ||||||
| 1,686 | Reinstatement of intercompany transactions vs. discontinued operations | 1,225 | 1,008 | ||||||||
| 10,818 | Net cash provided by operating activities on a standalone basis | 14,387 | 12,189 | (2,198 | ) | ||||||
Contents
Eni Integrated Annual Report |
|
71 | ||
Financial review |
Breakdown of special items including discontinued operations
| 2013 | (euro million) | 2014 | 2015 | |||||||||
| 3,046 | Special items of operating profit (loss) | 2,197 | 7,740 | ||||||||
| 205 | - environmental charges | 179 | 225 | ||||||||
| 2,400 | - assets impairments | 1,531 | 6,792 | ||||||||
| (187 | ) | - net gains on disposal of assets | (28 | ) | (417 | ) | |||||
| 334 | - risk provisions | (10 | ) | 211 | |||||||
| 270 | - provision for redundancy incentives | 9 | 42 | ||||||||
| 315 | - commodity derivatives | (16 | ) | 164 | |||||||
| (195 | ) | - exchange rate differences and derivatives | 229 | (63 | ) | ||||||
| (96 | ) | - other | 303 | 786 | |||||||
| 179 | Net finance (income) expense | 203 | 282 | ||||||||
| of which: | |||||||||||
| 195 | - exchange rate differences and derivatives | (229 | ) | 63 | |||||||
| (5,299 | ) | Net income (expense) from investments | (189 | ) | 471 | ||||||
| of which: | |||||||||||
| (3,599 | ) | - gains on disposal of assets | (159 | ) | (33 | ) | |||||
| (1,682 | ) | - impairments / revaluation of equity investments | (38 | ) | 489 | ||||||
| 901 | Income taxes | (270 | ) | 297 | |||||||
| of which: | |||||||||||
| 954 | - impairment of deferred tax assets of Italian subsidiaries | 976 | 851 | ||||||||
| - other net tax refund | (824 | ) | |||||||||
| 490 | - deferred tax adjustment on PSAs | 69 | |||||||||
| 64 | - impairment of deferred tax assets of upstream business | 860 | |||||||||
| (607 | ) | - taxes on special items of operating profit (loss) and other special items | (491 | ) | (1,414 | ) | |||||
| (1,173 | ) | Total special items of net profit (loss) | 1,941 | 8,790 | |||||||
| Attributable to: | |||||||||||
| (5 | ) | - non-controlling interest | 533 | 353 | |||||||
| (1,168 | ) | - Eni’s shareholders | 1,408 | 8,437 | |||||||
| of which: | |||||||||||
| 96 | Total special items of discontinued operations | 199 | 2,016 | ||||||||
| impairment due to fair value evaluation | 1,969 | ||||||||||
| financial derivative on the disposal of 12.503% interest in Saipem | 49 | ||||||||||
| 96 | other net special items | 199 | (2 | ) | |||||||
Contents
| 72 | Eni Integrated Annual Report |
|
||
Financial review |
Summarized Group balance sheet
| The summarized Group balance sheet aggregates the amount of assets and liabilities derived from the statutory balance sheet in accordance with functional criteria which consider the enterprise conventionally divided into the three fundamental areas focusing on resource investments, operations and financing. Management believes that this summarized group balance sheet is useful | information in assisting investors to assess Eni’s capital structure and to analyze its sources of funds and investments in fixed assets and working capital. Management uses the summarized group balance sheet to calculate key ratios such as the proportion of net borrowings to shareholders’ equity (leverage) intended to evaluate whether Eni’s financing structure is sound and well-balanced. |
| (euro million) | December 31, 2014 | December 31, 2015 | Change | ||||||||
| Fixed assets | |||||||||||
| Property, plant and equipment | 71,962 | 63,795 | (8,167 | ) | |||||||
| Inventories - Compulsory stock | 1,581 | 909 | (672 | ) | |||||||
| Intangible assets | 3,645 | 2,433 | (1,212 | ) | |||||||
| Equity-accounted investments and other investments | 5,130 | 3,263 | (1,867 | ) | |||||||
| Receivables and securities held for operating purposes | 1,861 | 2,026 | 165 | ||||||||
| Net payables related to capital expenditure | (1,971 | ) | (1,276 | ) | 695 | ||||||
| 82,208 | 71,150 | (11,058 | ) | ||||||||
| Net working capital | |||||||||||
| Inventories | 7,555 | 3,910 | (3,645 | ) | |||||||
| Trade receivables | 19,709 | 12,022 | (7,687 | ) | |||||||
| Trade payables | (15,015 | ) | (9,345 | ) | 5,670 | ||||||
| Tax payables and provisions for net deferred tax liabilities | (1,865 | ) | (3,133 | ) | (1,268 | ) | |||||
| Provisions | (15,898 | ) | (15,266 | ) | 632 | ||||||
| Other current assets and liabilities | 222 | 1,804 | 1,582 | ||||||||
| (5,292 | ) | (10,008 | ) | (4,716 | ) | ||||||
| Provisions for employee post-retirement benefits | (1,313 | ) | (1,056 | ) | 257 | ||||||
| Discontinued operations and assets held for sale including related liabilities | 291 | 10,446 | 10,155 | ||||||||
| CAPITAL EMPLOYED, NET | 75,894 | 70,532 | (5,362 | ) | |||||||
| Eni shareholders’ equity | 59,754 | 51,753 | (8,001 | ) | |||||||
| Non-controlling interest | 2,455 | 1,916 | (539 | ) | |||||||
| Shareholders’ equity | 62,209 | 53,669 | (8,540 | ) | |||||||
| Net borrowings | 13,685 | 16,863 | 3,178 | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 75,894 | 70,532 | (5,362 | ) | |||||||
| The summarized Group balance
sheet was affected by a sharp movement in the EUR/USD
exchange rate which determined an increase in net capital
employed, net borrowings and total equity by euro 4,670
million, euro 136 million and euro 4,534 million
respectively. This was due to translation into euros of
the financial statements of US-denominated subsidiaries
reflecting a 10.3% appreciation of the US dollar against
the euro (1 EUR = 1.089 USD at December 31, 2015 compared
to 1.214 at December 31, 2014). Fixed assets (euro 71,150 million) decreased by euro 11,058 million from December 31, 2014 mainly due to the reclassification of the tangible and intangible assets of Saipem and Versalis as discontinued operations. Other changes related to impairment losses and DD&A at continuing operations (euro 14,480 million), which were partly offset by currency movements and capital expenditure (euro 10,775 million). The reduction in the line item "Equity-accounted investments and other investments" was due to the divestment of Eni’s interest in Snam and Galp. |
Net working capital was in negative territory at minus euro 10,008 million and decreased by euro 4,716 million year-on-year. This mainly reflected the mentioned reclassification of the disposal groups Saipem and Versalis as discontinued operations. In addition, the G&P segment reduced its working capital, while the carrying amount of oil and gas inventories declined due to the impact of lower prices on the weighted-average cost accounting method, as well as the destocking of products and gas inventories as part of ongoing optimization measures. These decreases were partly offset by the increased balance of other current assets and liabilities. This was due to increased working capital exposure to joint venture partners in E&P. This latter increase was partly offset by the reversal of the deferred costs related to pre-paid gas volumes in previous reporting periods in the G&P segment following the off-taken of the underlying gas; while an opposite trend was recorded due to our long-term buyers off-taking Eni’s gas. Finally, the change in the balance of tax payables and provisions for deferred taxes (up by euro 1,268 million) reflected the write-off of Italian deferred tax assets |
Contents
Eni Integrated Annual Report |
|
73 | ||
Financial review |
| (euro 885 million) due to
projections of lower future taxable profit at Italian
subsidiaries as well as deferred tax assets of
subsidiaries located outside Italy of the upstream
segment (euro 1,058 million) and the
reimbursement/transferring to financing institutions of
taxes receivables in Italy (approximately euro 900
million). Discontinued operations and assets held for sale including related liabilities (euro 10,446 million) comprised: i) Saipem and its subsidiaries considering the arrangements signed on October 2015 with the Fondo Strategico Italiano (FSI). These include the sale of a 12.503% stake of the share capital of Saipem to FSI and a concurrent shareholder agreement with Eni intended to establish joint control over the target entity; ii) the chemical operating segment. As of the reporting date, negotiations were underway to define an agreement with an industrial partner who, by acquiring a controlling stake of Versalis, would support Eni in implementing |
the industrial plan designed
to upgrade this segment. In addition, the book value of
goodwill and of the non-current assets of the two
disposal groups have been aligned to the fair value of
the underlying net assets. This item also includes
non-strategic assets in the Refining & Marketing and
Gas & Power businesses. Shareholders’ equity including non-controlling interest was euro 53,669 million, representing a decrease of euro 8,540 million from December 31, 2014. This was due to net loss in comprehensive income for the year (euro 5,032 million) given by net loss of euro 9,378 million partly offset by positive foreign currency translation differences (euro 4,534 million). Also affecting the total equity was dividend distribution and other changes of euro 3,478 million (euro 3,457 million being the 2014 final dividend and the interim dividend for 2015 paid to Eni’s shareholders and dividends to other non-controlling interests). |
Net borrowings and leverage
| Eni evaluates its financial condition by reference to net borrowings, which is calculated as total finance debt less: cash, cash equivalents and certain very liquid investments not related to operations, including among others non operating financing receivables and securities not related to operations. Non-operating financing receivables consist of amounts due to Eni’s financing subsidiaries from banks and other financing institutions and amounts due to other subsidiaries from banks for investing purposes and deposits in escrow. Securities not related to operations consist primarily of government and corporate securities. | Leverage is a measure used by management to assess the Company’s level of indebtedness. It is calculated as a ratio of net borrowings which is calculated by excluding cash and cash equivalents and certain very liquid assets from financial debt to shareholders’ equity, including non-controlling interest. Management periodically reviews leverage in order to assess the soundness and efficiency of the Group balance sheet in terms of optimal mix between net borrowings and net equity, and to carry out benchmark analysis with industry standards. |
| (euro million) | December 31, 2014 | December 31, 2015 | Change | ||||||||
| Total debt: | 25,891 | 27,776 | 1,885 | ||||||||
| Short-term debt | 6,575 | 8,383 | 1,808 | ||||||||
| Long-term debt | 19,316 | 19,393 | 77 | ||||||||
| Cash and cash equivalents | (6,614 | ) | (5,200 | ) | 1,414 | ||||||
| Securities held for trading and other securities held for non-operating purposes | (5,037 | ) | (5,028 | ) | 9 | ||||||
| Financing receivables for non-operating purposes | (555 | ) | (685 | ) | (130 | ) | |||||
| Net borrowings | 13,685 | 16,863 | 3,178 | ||||||||
| Shareholders’ equity including non-controlling interest | 62,209 | 53,669 | (8,577 | ) | |||||||
| Leverage | 0.22 | 0.31 | 0.09 | ||||||||
Contents
| 74 | Eni Integrated Annual Report |
|
||
Financial review |
Summarized Group cash flow statement and change in net borrowings
| Eni’s summarized Group cash flow statement derives from the statutory statement of cash flows. It enables investors to understand the link existing between changes in cash and cash equivalents (deriving from the statutory cash flows statement) and in net borrowings (deriving from the summarized cash flow statement) that occurred from the beginning of the period to the end of period. The measure enabling such a link is represented by the free cash flow which is the cash in excess of capital expenditure needs. Starting from free cash flow it is possible to determine either: (i) changes in cash and cash equivalents for the period by adding/deducting cash flows | relating to financing debts/receivables (issuance/repayment of debt and receivables related to financing activities), shareholders’ equity (dividends paid, net repurchase of own shares, capital issuance) and the effect of changes in consolidation and of exchange rate differences; and (ii) change in net borrowings for the period by adding/deducting cash flows relating to shareholders’ equity and the effect of changes in consolidation and of exchange rate differences. The free cash flow and net cash provided by operating activities from continuing operations on a standalone basis are non-GAAP measures of financial performance. |
| 2013 | (euro million) | 2014 | 2015 | Change | ||||||||||||
| 3,896 | Net profit (loss) - continuing operations | 192 | (7,127 | ) | (7,319 | ) | ||||||||
| Adjustments to reconcile net profit (loss) to net cash provided by operating activities: | ||||||||||||||
| 8,917 | - depreciation, depletion and amortization and other non monetary items | 10,919 | 15,521 | 4,602 | ||||||||||
| (3,877 | ) | - net gains on disposal of assets | (99 | ) | (559 | ) | (460 | ) | ||||||
| 9,203 | - dividends, interests, taxes and other changes | 6,822 | 3,259 | (3,563 | ) | |||||||||
| 121 | Changes in working capital related to operations | 2,148 | 4,450 | 2,302 | ||||||||||
| (9,128 | ) | Dividends received, taxes paid, interests (paid) received during the period | (6,820 | ) | (4,363 | ) | 2,457 | |||||||
| 9,132 | Net cash provided by operating activities - continuing operations | 13,162 | 11,181 | (1,981 | ) | |||||||||
| 1,894 | Net cash provided by operating activities - discontinued operations | 1,948 | 722 | (1,226 | ) | |||||||||
| 11,026 | Net cash provided by operating activities | 15,110 | 11,903 | (3,207 | ) | |||||||||
| (11,584 | ) | Capital expenditure - continuing operations | (11,264 | ) | (10,775 | ) | 489 | |||||||
| (1,216 | ) | Capital expenditure - discontinued operations | (976 | ) | (781 | ) | 195 | |||||||
| (12,800 | ) | Capital expenditure | (12,240 | ) | (11,556 | ) | 684 | |||||||
| (317 | ) | Investments and purchase of consolidated subsidiaries and businesses | (408 | ) | (228 | ) | 180 | |||||||
| 6,360 | Disposals | 3,684 | 2,258 | (1,426 | ) | |||||||||
| (243 | ) | Other cash flow related to capital expenditure, investments and disposals | 435 | (1,351 | ) | (1,786 | ) | |||||||
| 4,026 | Free cash flow | 6,581 | 1,026 | (5,555 | ) | |||||||||
| (3,981 | ) | Borrowings (repayment) of debt related to financing activities | (414 | ) | (300 | ) | 114 | |||||||
| 1,715 | Changes in short and long-term financial debt | (628 | ) | 2,126 | 2,754 | |||||||||
| (4,225 | ) | Dividends paid and changes in non-controlling interests and reserves | (4,434 | ) | (3,477 | ) | 957 | |||||||
| (40 | ) | Effect of changes in consolidation, exchange differences and cash and cash equivalent related to discontinued operations | 78 | (789 | ) | (867 | ) | |||||||
| (2,505 | ) | NET CASH FLOW FOR THE PERIOD | 1,183 | (1,414 | ) | (2,597 | ) | |||||||
| 10,818 | Net cash provided by operating activities on standalone basis | 14,387 | 12,189 | (2,198 | ) | |||||||||
Change in net borrowings
| 2013 | (euro million) | 2014 | 2015 | Change | ||||||||||||
| 4,026 | Free cash flow | 6,581 | 1,026 | (5,555 | ) | |||||||||
| (21 | ) | Net borrowings of acquired companies | (19 | ) | 19 | |||||||||
| (23 | ) | Net borrowings of divested companies | 83 | 83 | ||||||||||
| 349 | Exchange differences on net borrowings and other changes | (850 | ) | (810 | ) | 40 | ||||||||
| (4,225 | ) | Dividends paid and changes in non-controlling interest and reserves | (4,434 | ) | (3,477 | ) | 957 | |||||||
| 106 | CHANGE IN NET BORROWINGS | 1,278 | (3,178 | ) | (4,456 | ) | ||||||||
Contents
Eni Integrated Annual Report |
|
75 | ||
Risk factors and uncertainties |
Risk factors and uncertainties
| The risks described below
may have a material effect on our operational and
financial performance. We invite our investors to
consider these risks carefully. Eni’s operating results and cash flow and future rate of growth are exposed to the effects of fluctuating prices of crude oil, natural gas and oil products Prices of oil and natural gas have a history of
volatility due to many factors that are beyond Eni’s
control. These factors include among other things: |
All these factors can affect
the global balance between demand and supply for oil and
prices of oil. Management believes that a gradual absorption of the supply glut in the medium to long-term may occur, as a result of reduced investments by international oil companies, possible oil-producing countries’ agreements to curb output, a reduction in OPEC’s spare capacity and the probable forcing of less efficient players, such as the operators in the U.S. tight oil production which we believe to have a cost structure no longer sustainable under the current scenario, out of the market. However, management has evaluated a number of risks and uncertainties inherent in such expectations, including structural changes that have been affecting oil industry – e.g. the increase in oil supply following U.S. tight oil revolution – reduced impact of geopolitical crises and the greater role played by renewable energy sources, as well as risks associated with internationally-agreed measures intended to reduce greenhouse gas emissions. Based on this outlook, Eni’s management has revised downwards its pricing assumptions of the Brent crude oil marker utilized in each of the periods of the Company’s 2016-2019 strategic plan, in particular the long-term reference price has been reduced to 65 $/bbl, down from the 90-dollar scenario utilized in the previous planning assumptions and in evaluating recoverability of the carrying amounts of our oil&gas assets. Price fluctuations have had in 2015 and may continue to have a material adverse effect on the Group’s results of operations and cash flow. Lower oil prices from one year to another negatively affect the Group’s consolidated results of operations and cash flow, because revenues are price sensitive; such current prices are reflected in revenues recognized in the Exploration & Production segment at the time of the price change, whereas expenses in this segment are either fixed or less sensitive to changes in crude oil prices than revenues. Eni estimates that its consolidated net profit and cash flow vary by approximately euro 0.2 billion for each one-dollar change in the price of the Brent crude oil benchmark with respect to the price scenario assumed in Eni’s financial projections for 2016 at 40 $/bbl. Free cash flow is expected to reduce/increase by a corresponding amount. In addition to the adverse effect on revenues, profitability and cash flow, lower oil and gas prices could result in the debooking of proved reserves, if they become economically unfavorable in this type of environment, and asset impairments. In 2015, we debooked 84 million BOE of proved reserves because decreases in commodity prices shortened the economic lives of certain producing properties and caused certain development projects to become economically unfavorable. In 2015, we recorded impairment losses at our oil&gas properties in the region of euro 5 billion (euro 3.5 billion post-tax) which were mainly driven by our revised outlook for commodity prices. |
Contents
| 76 | Eni Integrated Annual Report |
|
||
Risk factors and uncertainties |
| Depending on the significant
and speed of a decrease in crude oil prices, Eni may also
need to review investment decisions and the viability of
development projects. Lower oil and gas prices over
prolonged periods may also adversely affect Eni’s
results of operations and cash flow and hence the funds
available to finance expansion projects, further reducing
the Company’s ability to grow future production and
revenues. In addition, they may reduce returns at
development projects, either planned or implemented,
forcing the Company to reschedule, postpone or cancel
development projects. We are currently planning a capital
budget of approximately euro 37 billion in the next four
years excluding expenditures associated with our planned
disposals, which is significantly lower than our previous
financial projections, down by 21% on constant exchange
rate basis, to take into account the expected lower cash
flow from operations under our reduced price outlook in
the years 2016-2019. We are forecasting crude oil prices
in the range of 40 to 65 $/bbl in the next four years,
which is significantly lower than our previous planning
assumption of 55-90 $/bbl. Finally, lower oil prices over
prolonged periods may trigger a review of the future
recoverability of the Company’s carrying amounts of
oil&gas properties, resulting in the recognition of
significant further impairment charges. In response to
weakened oil and gas industry conditions and resulting
revisions made to rating agency commodity price
assumptions, lower commodity prices may also reduce our
access to capital and lead to a downgrade or other
negative rating action with respect to our credit rating
by rating agencies, including Standard & Poor’s
Ratings Services ("S&P") and Moody’s
Investor Services Inc ("Moody’s"). These
downgrades negatively affect our cost of capital,
increase our financial expenses, and may limit our
ability to access capital markets and execute aspects of
our business plans. Eni estimates that movements in oil prices affect approximately 50% of Eni’s current production. The remaining portion of Eni’s current production is insulated from crude oil price movements considering that the Company’s property portfolio is characterized by a sizeable presence of production sharing contracts, where, due to the cost recovery mechanism, the Company is entitled to a larger number of barrels in case of a fall in crude oil prices. (See also the section on the specific risks of the Exploration & Production segment "Risks associated with the exploration and production of oil and natural gas" below). Because of the above-mentioned risks, an extended continuation of the current commodity price environment, or further declines in commodity prices, will materially and adversely affect our business prospects, financial condition, results of operations, cash flows, liquidity, ability to finance planned capital expenditures and commitments and may impact shareholder returns, including dividends and the share price. In gas markets, price volatility reflects the dynamics of demand and supply for natural gas. Over the latest years, in the face of weak demand dynamics in Europe due to the economic downturn and competition from coal and renewable sources in the production of gas-fired power, gas supplies in Europe have continued to rise. Factors underlying |
this rise comprise the
increased availability of liquefied natural gas
("LNG") on a global scale, which in the future
will be fuelled by an expected growth in LNG exports from
the U.S., and volumes of contracted supplies of European
gas wholesalers under long-term arrangements with
take-or-pay clauses. (See also the other trends described
in the specific risk-factors section of Eni’s Gas
& Power business below). The increased liquidity of
European hubs has put significant downward pressure on
spot prices. Eni expects those trends to continue in the
foreseeable future due to a weak outlook for gas demand
and continued oversupplies. In case Eni fails to
renegotiate its long-term gas supply contracts in order
to make its gas competitive as market conditions evolve,
its profitability and cash flow in the Gas & Power
segment would be significantly affected by current
downward trends in gas prices. The Group’s results from its Refining & Marketing business are primarily dependent upon the supply and demand for refined products and the associated margins on refined product sales, with the impact of changes in oil prices on results of these segments being dependent upon the speed at which the prices of products adjust to reflect movements in oil prices. Competition |
Contents
Eni Integrated Annual Report |
|
77 | ||
Risk factors and uncertainties |
| future results of operations
and cash flow may be adversely affected. - In the Gas & Power segment, Eni faces strong competition from gas and energy players to sell gas to the industrial segment, the thermoelectric sector and the retail customers both in the Italian market and in markets across Europe. Competition has been fuelled by ongoing weak trends in demand due to the downturn and macroeconomic uncertainties and continued oversupplies in the marketplace. These have been driven by rising production of LNG on global scale and inter-fuel competition. The use of gas in gas-fired power plants has registered a dramatic decline due to the replacement with coal reflecting cost advantages and a dramatic growth in the adoption of renewable sources of energy (photovoltaic and solar). The large-scale development of shale gas in the United States was another fundamental trend that aggravated the oversupply situation in Europe because many LNG projects that originally targeted the U.S. market ended to supply the already saturated European sector. The continuing growth in the production of shale gas in the United States increased global gas supplies. These market imbalances in Europe were exacerbated by the fact that throughout the last decade and up to a few years ago the market consensus projected that gas demand in the continent would grow steadily until 2020 and beyond driven by economic growth and the increased adoption of gas in firing power production. European gas wholesalers including Eni committed to purchasing large amounts of gas under long-term supply contracts with so-called "take-or-pay" clauses from the main producing countries bordering Europe (namely Russia and Algeria). They also made significant capital expenditures to upgrade existing pipelines and to build new infrastructures in order to expand gas import capacity to continental markets. Long-term gas supply contracts with take-or-pay clauses expose gas wholesalers to a volume risk, as they are contractually required to purchase minimum annual amounts of gas or, in case of failure, to pay the underlying price. Due to the trends described above of the prolonged economic downturn and inter-fuel competition, the projected increases in gas demand failed to materialize, resulting in a situation of oversupply and pricing pressure. As demand contracted across Europe, gas supplies increased, thus driving the development of very liquid continental hubs to trade spot gas. Spot prices at continental hubs have become the main benchmarks to which selling prices are indexed across all end-markets, including large industrial customers, thermoelectric utilities and the retail segment. The profitability of gas operators was negatively impacted by falling sales prices at those hubs, where prices have been pressured by intense competition among gas operators in the face of weak demand, oversupplies and the constraint to dispose of minimum annual volumes of gas to be purchased under long-term supply contracts. Eni does not expect any meaningful improvement in the European gas sector for the foreseeable future. Gas demand will remain weak due to macroeconomic uncertainties and unclear EU policies regarding how to satisfy energy demand in Europe and the energy mix. |
Additionally, supplies at
continental hubs will continue to build given the
expected ramp-up of LNG exports from the United States
due to steady growth in gas production and ongoing
projects to reconvert LNG regasification facilities into
liquefaction export units and the start of several LNG
projects in the Pacific region and elsewhere. Eni
believes that these ongoing negative trends may adversely
affect the Company’s future results of operations
and cash flows, also taking into account the
Company’s contractual obligations to off-take
minimum annual volumes of gas in accordance to its
long-term gas supply contracts with take-or-pay clauses. - In its Gas & Power segment, Eni is vertically integrated in the production of electricity via its gas-fired power plants which currently use the combined-cycle technology. In the electricity business, Eni competes with other producers and traders from Italy or outside Italy who sell electricity in the Italian market. Going forward, the Company expects continuing competition due to the projections of moderate economic growth in Italy and Europe over the foreseeable future, also causing outside players to place excess production on the Italian market. The economics of the gas-fired electricity business have dramatically changed over the latest few years due to ongoing competitive trends. Spot prices of electricity in the wholesale market across Europe decreased due to excess supplies driven by the growing production of electricity from renewable sources, which also benefit from governmental subsidies, and a recovery in the production of coal-fired electricity which was helped by a substantial reduction in the price of this fuel on the back of a massive oversupply of coal which occurred on a global scale. As a result of falling electricity prices, margins on the production of gas-fired electricity went into negative territory. Eni believes that the profitability outlook in this business will remain weak in the foreseeable future. - In the Refining & Marketing segment, Eni faces strong competition both in the industrial and in the commercial activities. Refining margins have been negatively impacted by declining demand due to growing energy efficiency and the economic downturn, as well as by growing competition from new large scale refineries in the Middle East, benefiting of low production costs. In 2015, refining margins rebounded as a consequence of falling oil price and a recovery in oil products demand. Looking forward, management believes that refining margins will remain under pressure. In 2016, Eni forecasts a lower refining margin than in 2015. In marketing Eni faces the challenges of a growing competition from no logo operators and large retailers, which leverage on the price awareness of the final consumers to increase their market share. Safety,
security, environmental and other operational risks |
Contents
| 78 | Eni Integrated Annual Report |
|
||
Risk factors and uncertainties |
| and liquidity depend on its
ability to identify and mitigate the risks and hazards
inherent to operating in those industries. In the Exploration & Production segment, Eni faces natural hazards and other operational risks including those relating to the physical characteristics of oil and natural gas fields. These include the risks of eruptions of crude oil or of natural gas, discovery of hydrocarbon pockets with abnormal pressure, crumbling of well openings, leaks that can harm the environment and the security of Eni’s personnel and risks of blowout, fire or explosion. Accidents at a single well can lead to loss of life, damage or destruction to properties, environmental damage and consequently potential economic losses that could have a material and adverse effect on the business, results of operations, liquidity, reputation and prospects of the Group, including the share price and the dividends. Eni’s activities in the Refining & Marketing segment entails health, safety and environmental risks related to the handling, transformation and distribution of oil and oil products. These risks arise from the inherent characteristics of hydrocarbons, in particular flammability and toxicity. Also environmental risks are involved in the use of oil products, such as greenhouse gas emissions, soil and groundwater contaminations. All of Eni’s segments of operations involve, to varying degrees, the transportation of hydrocarbons. Risks in transportation activities depend both on the hazardous nature of the products transported, and on the transportation methods used (mainly pipelines, maritime, river-maritime, rail, road, gas distribution networks), the volumes involved and the sensitivity of the regions through which the transport passes (quality of infrastructure, population density, environmental considerations). All modes of transportation of hydrocarbons are particularly susceptible to a loss of containment of hydrocarbons and other hazardous materials, and, given the high volumes involved, could present a significant risk to people and the environment. The Company invests significant resources in order to upgrade the methods and systems for safeguarding the safety and health of employees, contractors and communities, and the environment; to prevent risks; to comply with applicable laws and policies; and to respond to and learn from unexpected incidents. Eni seeks to minimize these operational risks by carefully designing and building facilities, including wells, industrial complexes, plants and equipment, pipelines, storage sites and distribution networks, and managing its operations in a safe, compliant and reliable manner. Failure to manage these risks could effectively result in unexpected incidents, including releases or oil spills, blowouts, fire, mechanical failures and other incidents resulting in personal injury, loss of life, environmental damage, legal liabilities and/or damage claims, destruction of crude oil or natural gas wells, as well as damage to equipment and other property, all of which could lead to a disruption in operations. Eni’s operations are often conducted in difficult and/or environmentally sensitive locations such as the Gulf of Mexico, the Caspian Sea and the Arctic. In such locations, the consequences of any incident could be greater than in other locations. Eni also faces risks once production is |
discontinued, because
Eni’s activities require decommissioning of
productive infrastructure and environmental site
remediation. Furthermore, in certain situations where Eni
is not the operator, the Company may have limited
influence and control over third parties, which may limit
its ability to manage and control such risks. Eni’s insurance subsidiary provides insurance coverage to Eni’s entities, generally up to $1.1 billion in case of offshore incident and $1.5 billion in case of incident at onshore facilities (refineries). In addition, the Company also maintains worldwide third-party liability insurance coverage for all of its subsidiaries. Management believes that its insurance coverage is in line with industry practice and sufficient to cover normal risks in its operations. However, the Company is not insured against all potential risks. In the event of a major environmental disaster such as the BP Deepwater Horizon, for example, Eni’s third-party liability insurance would not provide any material coverage and thus the Company’s liability would far exceed the maximum coverage provided by its insurance. The loss Eni could suffer in the event of such a disaster would depend on all the facts and circumstances of the event and would be subject to a whole range of uncertainties, including legal uncertainty as to the scope of liability for consequential damages, which may include economic damage not directly connected to the disaster. The occurrence of the events mentioned above could have a material adverse impact on the Group’s business, competitive position, cash flow, results of operations, liquidity, future growth prospects, shareholders’ returns and damage the Group’s reputation. The Company cannot guarantee that it will not suffer any uninsured loss and there can be no guarantee, particularly in the case of a major environmental disaster or industrial accident, that such loss would not have a material adverse effect on the Company. Risks associated with the exploration and
production of oil and natural gas A description of the main risks facing the Company’s business in the exploration and production of oil and gas is provided below. Eni’s oil and natural gas offshore operations are particularly exposed to health, safety, security and environmental risks |
Contents
Eni Integrated Annual Report |
|
79 | ||
Risk factors and uncertainties |
| Eni has material offshore
operations relating to the exploration and production of
hydrocarbons. In 2015, approximately 52% of Eni’s
total oil and gas production for the year derived from
offshore fields, mainly in Egypt, Libya, Norway, Italy,
Angola, the Gulf of Mexico, Congo, United Kingdom and
Nigeria. Offshore operations in the oil and gas industry
are inherently riskier than onshore activities. Offshore
accidents and spills could have impacts also of
catastrophic proportions on the ecosystem and health and
security of people due to the objective difficulties in
handling hydrocarbons containment, pollution, poisoning
of water and organisms, length and complexity of cleaning
operations and other factors. Further, offshore
operations are subject to marine risks, including storms
and other adverse weather conditions and vessel
collisions, as well as interruptions or termination by
governmental authorities based on safety, environmental
and other considerations. Failure to manage these risks
could result in injury or loss of life, damage to
property, environmental damage, and could result in
regulatory action, legal liability, loss of revenues and
damage to Eni’s reputation and could have a material
adverse effect on Eni’s operations, results,
liquidity, reputation, business prospects and the share
price. Exploratory drilling efforts may be
unsuccessful |
and plans to spend
approximately euro 0.9 billion on average in the next
four-year plan on exploration activities. Unsuccessful
exploration activities and failure to discover additional
commercial reserves could reduce future production of oil
and natural gas, which is highly dependent on the rate of
success of exploration projects. Development
projects bear significant operational risks, which may
adversely affect actual returns |
Contents
| 80 | Eni Integrated Annual Report |
|
||
Risk factors and uncertainties |
| costs for
materials and other productive factors to preserve
margins at its development projects. In case it fail to
obtaining the planned cost reductions, its profitability
in the Exploration & Production segment could be
adversely affected; - the actual performance of the reservoir and natural field decline; and - the ability and time necessary to build suitable transport infrastructures to export production to final markets. Events such as the ones described above of
poor project execution, inadequate front-end engineering
design, delays in the achievement of critical events and
project milestones, delays in the delivery of production
facilities and other equipment by third parties,
differences between scheduled and actual timing of the
first oil, as well as cost overruns may adversely affect
the economic returns of Eni’s development projects.
Failure to deliver major projects on time and on budget
could negatively affect results of operations, cash flow
and the achievement of short-term targets of production
growth. Finally, development and marketing of
hydrocarbons reserves typically require several years
after a discovery is made. This is because a development
project involves an array of complex and lengthy
activities, including appraising a discovery in order to
evaluate its commercial potential, sanctioning a
development project and building and commissioning
related facilities. As a consequence, rates of return for
such long-lead-time projects are exposed to the
volatility of oil and gas prices and costs which may be
substantially different from the prices and costs assumed
when the investment decision was actually made, leading
to lower rates of return. In addition, projects executed
with partners and co-venturers reduce the ability of the
Company to manage risks and costs, and Eni could have
limited influence over and control of the operations and
performance of its partners. Furthermore, Eni may not
have full operation control of the joint ventures in
which it participates and may have exposure to
counterparty credit risk and disruption of operation and
strategic objectives due to the nature of its
relationships. For example, we have incurred cost overruns and continuing delays in the achievement of first oil at the Kashagan offshore field in the Kazakh section of the Caspian Sea. The latest issue related to a pipeline for the transport of acid gas where a spillage occurred, forcing the Consortium to shut down production. The damaged pipeline needs to be replaced and activities are underway. Management believes that production will resume as early as in late 2016. Inability to replace oil and natural gas reserves
could adversely impact results of operations and
financial condition |
addition
to being a function of production, revisions and new
discoveries, the Company’s reserve replacement is
also affected by the entitlement mechanism in its PSAs
and similar contractual schemes. Pursuant to these
contracts, Eni is entitled to a portion of a field’s
reserves, the sale of which is intended to cover
expenditures incurred by the Company to develop and
operate the field. The higher the reference prices for
Brent crude oil used to estimate Eni’s proved
reserves, the lower the number of barrels necessary to
recover the same amount of expenditures. The opposite
occurs in case of lower oil prices. Future oil and gas
production is dependent on the Company’s ability to
access new reserves through new discoveries, application
of improved techniques, success in development activity,
negotiation with national oil companies and other
entities owners of known reserves and acquisitions. In a
number of reserve-rich countries, national oil companies
decide to develop portion of oil and gas reserves that
remain to be developed. To the extent that national oil
companies decide to develop those reserves without the
participation of international oil companies or if the
Company fails to establish partnership with national oil
companies, Eni’s ability to access or develop
additional reserves will be limited. An inability to replace produced reserves by finding, acquiring and developing additional reserves could adversely impact future production levels and growth prospects. If Eni is unsuccessful in meeting its long-term targets of production growth and reserve replacement, Eni’s future total proved reserves and production will decline and this will negatively affect future results of operations, cash flow and business prospects. Uncertainties in estimates of oil and natural gas
reserves |
|||
Contents
Eni Integrated Annual Report |
|
81 | ||
Risk factors and uncertainties |
| due
to the cost recovery mechanism under the Company’s
production sharing agreements and similar contractual
schemes. The prices used in calculating Eni’s estimated proved reserves are, in accordance with the U.S. Securities and Exchange Commission (the "U.S. SEC") requirements, calculated by determining the unweighted arithmetic average of the first-day-of-the-month commodity prices for the preceding 12 months. For the 12-months ending December 31, 2015, average prices were based on 54 $/bbl for the Brent crude oil which compared to a price reference of 101 $/bbl in 2014. This decline in the price of crude oil triggered the downward revision of those reserves that have become uneconomic in this type of environment, amounting to approximately 84 mmboe. Commodity prices declined significantly in the fourth quarter of 2015 and in the first quarter of 2016 and if such prices do not increase significantly, our future calculations of estimated proved reserves will be based on lower commodity prices which could result in our having to remove non-economic reserves from our proved reserves in future periods. This effect will be counterbalanced in full or in part by increased reserves corresponding to the additional volume entitlements under Eni’s PSAs relating to cost oil: i.e. because of lower oil and gas prices, the reimbursement of expenditures incurred by the Company requires additional volumes of reserves. Many of these factors, assumptions and variables involved in estimating proved reserves are subject to change over time, therefore impact the estimates of oil and natural gas reserves. Accordingly, the estimated reserves reported as of the end of the period covered by this filing could be significantly different from the quantities of oil and natural gas that will be ultimately recovered. Any downward revision in Eni’s estimated quantities of proved reserves would indicate lower future production volumes, which could adversely impact Eni’s results of operations and financial condition. The development of our proved undeveloped reserves
may take longer and may require higher levels of capital
expenditures than we currently anticipate. Our proved
undeveloped reserves may not be ultimately developed or
produced |
plans to develop
of those reserves, or if we are not otherwise able to
successfully develop these reserves as a result of our
inability to fund necessary capital expenditures or
otherwise, we will be required to remove the associated
volumes from our reported proved reserves. Oil and
gas activity are subject to high levels of income taxes The effective tax rate of the Company’s
Exploration & Production segment for the fiscal year
2015 was estimated at approximately 80 per cent driven
by: (i) the recognition of a major part of positive
pre-tax results in PSA contracts, which, although more
resilient in a low-price environment, nonetheless bear
higher-than-average rates of tax; and (ii) a higher
incidence of certain non-deductible expenses on the
pre-tax profit that has been lowered by the scenario.
Also this outsized tax rate was due to the fact that in
certain jurisdictions we were unable to match before-tax
losses with the recognition of deferred tax assets due to
lack of expected future taxable profit against which
those asset can be utilized. Looking forward management
believes that the tax rate in this segment will continue
being negatively affected by those factors due to the
persistence of weak commodity prices. In the current uncertain financial and economic
environment also due to falling oil prices, governments
are facing greater pressure on public finances, which may
increase their motivation to intervene in the fiscal
framework for the oil and gas industry, including the
risk of increased taxation, windfall taxes,
nationalization and expropriations. The present value of future net revenues from Eni’s proved reserves will not necessarily be the same as the current market value of Eni’s estimated crude oil and natural gas reserves and, in particular, may be reduced due to the recent significant decline in commodity prices |
||
Contents
| 82 | Eni Integrated Annual Report |
|
||
Risk factors and uncertainties |
| Investors should not assume
the present value of future net revenues from Eni’s
proved reserves is the current market value of Eni’s
estimated crude oil and natural gas reserves. In
accordance with U.S. SEC rules, Eni bases the estimated
discounted future net revenues from proved reserves on
the 12-month unweighted arithmetic average of the
first-day-of-the-month commodity prices for the preceding
twelve months. Actual future prices may be materially
higher or lower than the U.S. SEC pricing used in the
calculations. Actual future net revenues from crude oil
and natural gas properties will be affected by factors
such as: - the actual prices Eni receives for sales of crude oil and natural gas; - the actual cost and timing of development and production expenditures; - the timing and amount of actual production; and - changes in governmental regulations or taxation. The timing of both Eni’s production and its incurrence of expenses in connection with the development and production of crude oil and natural gas properties will affect the timing and amount of actual future net revenues from proved reserves, and thus their actual present value. In addition, the 10% discount factor Eni uses when calculating discounted future net revenues may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with Eni’s reserves or the crude oil and natural gas industry in general. At December 31, 2015, the net present value of Eni’s proved reserves totaled approximately euro 37.8 billion, calculated in accordance with the requirements of FASB Extractive Activities - Oil & Gas (Topic 932), significantly lower than in 2014 due to reduced commodity prices. The average price used to estimate Eni’s proved reserves and the net present value at December 31, 2015, as calculated in accordance with U.S. SEC rules, was 54 $/bbl for the Brent crude oil that compares to 101 $/bbl in 2014. Future prices may materially differ from those used in our year-end estimates. Commodity prices have decreased significantly in recent months. Holding all other factors constant, if commodity prices used in Eni’s year-end reserve estimates were in line with the pricing environment existing in the first quarter of 2016, Eni’s PV-10 at December 31, 2016 could decrease significantly. Political considerations As of December 31, 2015, approximately 81% of Eni’s proved hydrocarbon reserves were located in such countries and |
60% of Eni’s supplies
of natural gas came from outside OECD countries. Adverse
political, social and economic developments, such as
internal conflicts, revolutions, establishment of
non-democratic regimes, protests, strikes and other forms
of civil disorder, contraction of economic activity and
financial difficulties of the local governments with
repercussions on the solvency of state institutions,
inflation levels, exchange rates and similar events in
those non-OECD countries may negatively impair Eni’s
ability to continue operating in an economic way, either
temporarily or permanently, and Eni’s ability to
access oil and gas reserves. In particular, Eni faces
risks in connection with the following, possible issues: - lack of well-established and reliable legal systems and uncertainties surrounding enforcement of contractual rights; - unfavorable enforcement of laws, regulations and contractual arrangements leading, for example, to expropriations, nationalizations or forced divestitures of assets and unilateral cancellation or modification of contractual terms. Eni is facing increasing competition from state-owned oil companies who are partnering Eni in a number of oil and gas projects and properties in the host countries where Eni conducts its upstream operations. These state-owned oil companies can change contractual terms and other conditions of oil and gas projects in order to obtain a larger share of profit from a given project, thereby reducing Eni’s profit share. They can also render different interpretations of contractual clauses relating to the recovery of certain expenses incurred by the Company to produce hydrocarbons reserves in any given projects. As of the balance sheet date receivables for euro 773 million relating to cost recovery under certain petroleum contracts in a non-OECD country were the subject of an arbitration proceeding; - restrictions on exploration, production, imports and exports; - tax or royalty increases (including retroactive claims); - political and social instability which could result in civil and social unrest, internal conflicts and other forms of protest and disorder such as strikes, riots, sabotage, acts of violence and similar incidents. These risks could result in disruptions to economic activity, loss of output, plant closures and shutdowns, project delays, the loss of personnel or assets. They may force Eni to evacuate personnel for security reasons and to increase spending on security. They may disrupt financial and commercial markets, including the supply of and pricing for oil and natural gas, and generate greater political and economic instability in some of the geographic areas in which Eni operates; - difficulties in finding qualified suppliers in critical operating environment; and - complex process in granting authorizations or licenses affecting time-to-market of certain development projects. Areas where Eni operates, where the Company is particularly exposed to the political risk include, but are not limited to: Libya, Egypt, Algeria, Nigeria, Angola, Indonesia, Kazakhstan, Venezuela, Iraq and Russia. In addition, any possible reprisals because of military or other action, such as acts of terrorism in the United States or elsewhere, could have a material adverse effect on Eni’s |
Contents
Eni Integrated Annual Report |
|
83 | ||
Risk factors and uncertainties |
| business, results of
operations and financial condition. In recent years, Eni’s production levels in Libya were negatively impacted by an internal revolution and a change of regime in 2011, which led to a prolonged period of political and social instability characterized by acts of local conflict, social unrest, protests, strikes and other similar events. Those political development forced Eni to temporarily interrupt or reduce its producing activities, negatively affecting Eni’s results of operations and cash flow until the situation began to stabilize. Although our production levels in Libya for the year 2015 returned to levels not seen from the outbreak of the civil war, the geopolitical situation remains unstable and unpredictable. In 2015, Libya accounted for approximately 20% of the Group total hydrocarbons production for the year and going forward its contribution albeit slowing down will remain significant. In case of major unfavorable geopolitical developments in Libya including but not limited to, a resurgence of civil war, renewed internal tensions, civil disorder or any other outbreak of violence, we could be forced to shut down our operations and interrupt production which could significantly and negatively affect our results of operations, cash flow, business prospects and shareholder value. Also Eni’s activities in Nigeria have been impacted in recent years by continuing episodes of theft, acts of sabotage and other similar disruptions which have jeopardized the Company’s ability to conduct operations in full security, particularly in the onshore area of the Niger Delta. Looking forward, Eni expects that those risks will continue to affect Eni’s operations in those countries. Particularly, the uncertain geopolitical outlook in Libya and unsafe operational conditions onshore Nigeria were factored up to a certain extent in the Company’s projections of future production levels in these two countries. In the current depressed environment for crude oil prices, the financial outlook of certain countries where Eni’s hydrocarbons reserves are located has significantly deteriorated due to lower proceeds from the exploitation of hydrocarbons resources. This trend has increased the risk of sovereign default, which may cause political and macroeconomic instability and trigger one or more of the above-mentioned risks factors. State-owned petroleum companies of those countries are exposed to a liquidity risk too. Eni is partnering those national oil companies in executing certain oil&gas development projects. A possible sovereign default might jeopardize the financial feasibility of ongoing projects or increase the financial exposure of Eni, which is contractually obligated to finance the share of development expenditures of the first party in case of a financial shortfall of the latter. This risk is mitigated by the customary default clause, which states that in case of a default, the non-defaulting party is entitled to compensate its claims with the share of production of the defaulting party. In Egypt, we have experienced continued difficulties in collecting overdue trading receivables for the supply of our share of oil and gas production to local oil and gas companies. As of December 31, 2015, Eni owned a significant amount of trade receivables due (euro 771 million) in respect of supplies of |
its oil and gas entitlements
to local companies. Management is currently addressing
the recoverability of the Company’s trade
receivables vs. Egyptian counterparties leveraging
various initiatives and commercial agreements. Eni has
not experienced any disruptions in its producing
activities in the Country to date. Eni closely monitors political, social and economic risks of approximately 60 countries in which has invested or intends to invest, in order to evaluate the economic and financial return of certain projects and to selectively evaluate projects. While the occurrence of those events is unpredictable, it is likely that the occurrence of any such events could adversely affect Eni’s results from operations, cash flow and business prospects. An escalation of the political crisis in Russia and
Ukraine could affect Eni’s business in particular
and the global energy supply generally Approximately 30% of Eni’s natural gas is supplied by Russia and Eni is currently partnering the Russian company Rosneft in executing exploration activities in the Russian sections of the Barents Sea and the Black Sea. Contracts pertaining to the above-mentioned exploration licenses were entered into before enactment of the restrictive measures and have been put on hold since then. Eni started the required authorization procedure before the relevant EU Member States’ Authorities who granted the Company certain authorizations that are valid throughout the whole European Union. However, given the uncertainty surrounding this matter, Eni cannot exclude major delays in certain ongoing or planned oil&gas projects in Russia. It is possible that wider sanctions covering the Russian energy, banking and/or finance industries may be implemented, which may be targeted at specific individuals or companies or more generally. Further sanctions imposed on Russia, Russian individuals or Russian companies by the international community, such as sanctions enacting restrictions on purchases of Russian gas by European companies or restricting dealings with Russian counterparties could adversely impact Eni’s business, results of operations and cash flow. In addition, an escalation of the crisis and of imposed sanctions could result in a significant disruption of energy supply and trade flows globally, which could have a material adverse effect on the Group’s business, financial conditions, results of operations and future prospects. |
Contents
| 84 | Eni Integrated Annual Report |
|
||
Risk factors and uncertainties |
| Risks in the Company Gas
& Power business We expect a weak trading environment in our Gas & Power segment, which will negatively affect the profitability outlook in this business Eni anticipates a number of risk factors to the profitability outlook of the Company’s gas marketing business over the four-year planning period. Those include weak demand growth due to macroeconomic uncertainties, muted thermoelectric consumption, continuing oversupplies and strong competition. Eni believes that those trends will negatively affect the gas marketing business future results of operations and cash flows by reducing gas selling prices and margins. Our financial outlook has factored in the rigidities of the Company’s long-term supply contracts with take-or-pay clauses, where the Company is obligated to offtake a contractually set minimum volume of gas supplies or, in case of failure, to pay the contractual price (see below). The main source of risk is concerning Eni’s wholesale business which results are exposed to the volatility of the spreads between spot prices at European hubs and Italian spot prices because our supply costs are mainly indexed to spot prices at European hubs, whereas a large part of our selling volumes are indexed to Italian spot prices. Against this backdrop, Eni’s management will continue to execute its strategy of renegotiating the Company’s long-term gas supply contracts in order to align pricing and volume terms to current market conditions as they evolve. The revision clauses provided by these contracts states the right of each counterparty to renegotiate the economic terms and other contractual conditions periodically, in relation to ongoing changes in the gas scenario. Management believes that the outcome of those renegotiations is uncertain in respect of both the amount of the economic benefits that will be ultimately achieved and the timing of recognition in profit. Furthermore, in case Eni and the gas suppliers fail to agree on revised contractual terms, the claiming party has faculty to open an arbitration procedure to obtain revised contractual conditions. This would add to the level of uncertainty surrounding the outcome and timing of those renegotiations. In 2015, the results of operations in the Gas & Power segment were negatively affected by a delay in the settlement of an arbitration procedure with a long-term supplier, which management had budgeted to recognize in that year, owing to the complexity of the matter. These considerations also apply to ongoing renegotiations with our long-term buyers. In 2015, the performance of our Gas & Power business was negatively affected by the unfavorable outcome of an arbitration procedure with one of our long-term buyer, where the amount of the discount on the price of gas awarded to the claimant was higher than our initial provision. Based on these risk factors, we believe that future results of the Gas Marketing activities are subject to increasing volatility and unpredictability. |
Current, negative trends
in gas demands and supplies may impair the Company’s
ability to fulfill its minimum off-take obligations in
connection with its take-or-pay, long-term gas supply
contracts In order to secure long-term access to gas availability, particularly with a view of supplying the Italian gas market and anticipating certain trends in gas demand which actually failed to materialize, Eni has signed a number of long-term gas supply contracts with national operators of certain key producing countries, which include Russia, Algeria, Libya, Norway and the Netherlands, where most of European gas supplies are sourced from. These contracts have a residual life of approximately 12 years. These contracts include take-or-pay clauses whereby the Company is required to off-take minimum, pre-set volumes of gas in each year of the contractual term or, in case of failure, to pay the whole price, or a fraction of that price, up to the minimum contractual quantity. The take-or-pay clause entitles the Company to off-take pre-paid volumes of gas in later years. Amounts of cash pre-payments and time schedules for off-taking pre-paid gas vary from contract to contract. Generally, cash pre-payments are calculated on the basis of the energy prices current in the year when the Company is scheduled to purchase the gas, with the balance due in the year when the gas is actually purchased. The right to off-take pre-paid gas expires within a ten-year term in some contracts or remains in place until contract expiration in other arrangements. In addition, the right to off-take the pre-paid gas can be exercised in future years if the Company fulfills its minimum take obligation in a given year and within the limit of the maximum annual quantity. Similar considerations apply to ship-or-pay contractual obligations. Looking forward, management believes that the current market outlook which will be driven by a weak recovery in gas demand, continued oversupplies and strong competitive pressures as well as any possible change in sector-specific regulation represents a risk factor to the Company’s ability to fulfill its minimum take obligations associated with its long-term supply contracts. Adding to this risk, the Company is currently forecasting sales volumes to remain flat or to decrease slightly in 2016 and in the subsequent years compared to 2015. Furthermore, the above-mentioned take-or-pay clause exposes the Company to a price risk because the cost of gas that the Company recognizes at the incurrence of the take-or-pay clause may be higher than the current cost of gas supplies in the year when the accrued gas is actually reversed through profit and loss. In 2015, the segment operating profit was hit by a euro 150 million charge in connection to this factor. Risks associated with sector-specific regulations
in Italy |
Contents
Eni Integrated Annual Report |
|
85 | ||
Risk factors and uncertainties |
| regulatory framework may
negatively affect future sales margins of gas and
electricity, operating results and cash flow. Below is
provided an overview of the most important aspects of the
ongoing regulatory framework of the gas sector in Italy
including management’s evaluation of the possible
impacts on the future results of operations in the Gas
& Power segment. The Italian Authority for Electricity and Gas (the "Authority") is entrusted with certain powers in the matter of natural gas pricing. Specifically, the Authority retains a surveillance power on pricing in the natural gas market in Italy and the power to establish selling tariffs for the supply of natural gas to residential users. Accordingly, decisions of the Authority on these matters may limit the ability of Eni to pass an increase in the cost of the raw material onto final consumers of natural gas. In 2013, the Authority changed the pricing mechanism of gas supplies to retail customers by introducing a full indexation of the raw material cost component of the tariff to spot prices, by this way replacing the former oil-linked indexation. The new regulatory regime was introduced in a market scenario where gas spot prices were significantly lower than gas prices under long-term, oil-linked contracts, as the Brent price at the time was about 100 $/bbl. Subsequently, the Authority introduced a compensation mechanism to promote the renegotiation of long-term gas supply contracts. This compensation mechanism was intended to mitigate the impact of the new tariff regime to operators with long-term supply contracts (typically oil-linked) by reimbursing to them part of the higher long-term gas supply costs which would be no longer recoverable trough tariffs. This compensation mechanism applies to the three thermal years, from October 2013 through October 2016. The Authority set the initial amount of the compensation in 2013 based on the documentation filed by each operator, taking into account the price differential between the average price of a basket of theoretically efficient long- term contract and spot prices at the Dutch platform TTF. The Authority elaborated a projection of the supply costs of gas that Eni would incur in the future thermal year of the compensation mechanism, under various oil prices assumptions. Based on those projections and on gas forward prices and volume forecast for Eni, the Authority established a maximum compensation of euro 160 million, to which Eni would be entitled for the three-thermal year period of the mechanism implementation. The Authority resolution envisages that 40% of the compensation is due in the first thermal year, 40% in the second year and 20% in the third thermal year. In each thermal year, the Authority would update the compensation mechanism to verify the ongoing right of gas operators to receive compensation in the light of evolving trends in costs and prices of gas. Based on this, the initial amount of the compensation would be confirmed or, in case trends in spot prices vs. oil-linked prices reverse, operator would have to compensate customers by paying to the Authority up to three time the amount of the |
initial compensation, plus
giving back any tranche of the compensation already
cashed in. In thermal year 2014, the Authority updated the index of supply costs applicable to Eni’s portfolio. Under a 100 $/bbl scenario, the AEEGSI verified that Eni’s costs of supplies were higher than spot prices and accordingly ratified the first tranche of the compensation equal to euro 60 million (or the 40% of the initial amount). This gain was recognized in the group consolidated financial statements for the year 2014. In November 2015, the Authority updated the index of procurement cost for thermal year 2015 and resolved that Eni’s supply costs have evolved coherently to the Authority projections made in 2013. Under this scenario, the Authority confirmed the initial amount of the compensation of euro 160 million and Eni recognized a second tranche equal to 40% of that amount (approximately euro 60 million) in the 2015 Financial Statements. In spite of these favorable developments, considering the current market scenario, it is possible that the Authority might determine an unfavorable update of the supply cost index for the thermal year 2016. Under this scenario, Eni could incur a loss up to three times the amount of the initial compensation or euro 480 million, giving back the amounts already recognized in 2014 and 2015. The final outcome is expected in the fourth quarter of 2016 when the AEEGSI is scheduled to update the supply cost index for the thermal year 2016, on which basis Eni is due to recognize the profit and loss impact (positive or negative as the case may be). In the light of current market scenario, Eni prudently contested the Resolution 549/2014/R/gas, which implements the compensation mechanism. Eni claimed that the Resolution did not provided sufficient criteria for updating the compensation and could potentially determine unfair results, also contending its legitimacy. Environmental, health and safety regulations |
Contents
| 86 | Eni Integrated Annual Report |
|
||
Risk factors and uncertainties |
| provide for measures to be
taken to protect the safety of the workplace and health
of communities involved by the Company’s activities,
and impose criminal or civil liabilities for polluting
the environment or harming employees’ or
communities’ health and safety resulting from oil,
natural gas, refining and other Group’s operations. Different kinds of limits and restrictions on the activities of exploring and producing hydrocarbons could be enacted also in OECD countries due to environmental reasons or other motivations as it would occur in case of a favorable outcome of an Italian referendum scheduled April 17, 2016 on whether to abrogate an environmental rule that currently allows oil&gas operators to continue production at offshore fields located in territorial waters beyond relevant concessions term till fields depletion. Eni is currently operating 29 concessions in Italy’s territorial waters. These concessions account for approximately 1% of the Company’s proved reserves at December 31, 2015 (6,890 million boe). Within such amount and factoring in the portion of those reserves that could be produced before the expirations of the underlying concessions, in case of an unfavorable outcome of the above mentioned referendum and assuming that the concessions would be revoked upon expiration, the Company’s results of operations and cash flow might be negatively affected also considering the negative impact associated with higher amortization charges and accelerated wind down of decommissioning liabilities. These laws and regulations also regulate emissions of substances and pollutants, handling of hazardous materials and discharges to surface and subsurface of water resulting from the operation of oil and natural gas extraction and processing plants, petrochemical plants, refineries, service stations, vessels, oil carriers, pipeline systems and other facilities owned by Eni. In addition, Eni’s operations are subject to laws and regulations relating to the production, handling, transportation, storage, disposal and treatment of waste materials. Breach of environmental, health and safety laws expose the Company’s employees to criminal and civil liability and the Company to the incurrence of liabilities associated with compensation for environmental, health or safety damage, as well as damage to its reputation. Additionally, in the case of violation of certain rules regarding the safeguard of the environment and safety in the workplace, the Company can be liable for negligent or willful conduct on part of its employees as per Italian Law Decree No. 231/2001. Environmental, health and safety laws and regulations
have a substantial impact on Eni’s operations.
Management expects that the Group will continue to incur
significant amounts of operating expenses and
expenditures in the foreseeable future to comply with
laws and regulations and to safeguard the environment,
safety on the workplace, health of employees, contractors
and communities involved by the Company operations,
including: |
government action to address
climate change; - remedial and clean-up measures related to environmental contamination or accidents at various sites, including those owned by third parties (see discussion below); - damage compensation claimed by individuals and entities, including local, regional or state administrations, in case Eni causes any kind of accident, pollution, contamination or other environmental liability involving its operations or the Company is found guilty of violating environmental laws and regulations; and - costs in connection with the decommissioning and removal of drilling platforms and other facilities, and well plugging. Furthermore, in the countries where Eni
operates or expects to operate in the near future, new
laws and regulations, the imposition of tougher license
requirements, increasingly strict enforcement or new
interpretations of existing laws and regulations or the
discovery of previously unknown contamination may also
cause Eni to incur material costs resulting from actions
taken to comply with such laws and regulations,
including: As a further result of any new laws and regulations or other factors, Eni may also have to curtail, modify or cease certain operations or implement temporary shutdowns of facilities, which could diminish Eni’s productivity and materially and adversely impact Eni’s results of operations, including profits and cash flow. Security threats require continuous assessment and response measures. Acts of terrorism against Eni’s plants, installations, platforms and offices, pipelines, transportation or computer systems could severely disrupt businesses and operations and could cause harm to people and the environment. Risks of environmental, health and safety incidents and liabilities are inherent in many of Eni’s operations and products. Management believes that Eni adopts high operational standards to ensure safety in running its operations and safeguard of the environment and the health of employees, contractors and communities. In spite of those measures, it is possible that incidents like blowouts, oil spills, contaminations, pollution, and release in the air, soil and ground water of pollutants and other dangerous materials, liquids or gases, and other similar events could occur that would result in damage, also of large proportion and reach, to the environment, employees, contractors, communities and property. The occurrence of any such events could have a material adverse impact on the Group business, competitive position, cash flow, results of operations, liquidity, future growth prospects, shareholders’ return and damage to the Group reputation. Eni has incurred in the past and may incur in the future material environmental liabilities in connection with the environmental impact of its past and present industrial activities. Eni is also |
Contents
Eni Integrated Annual Report |
|
87 | ||
Risk factors and uncertainties |
| exposed to claims under
environmental requirements and, from time to time, such
claims have been made against us. In Italy, environmental
requirements and regulations typically impose strict
liability. Strict liability means that in some situations
Eni could be exposed to liability for clean-up and
remediation costs, natural resource damages, and other
damages as a result of Eni’s conduct of operations
that was lawful at the time it occurred or the conduct of
prior operators or other third parties. In addition,
plaintiffs may seek to obtain compensation for damage
resulting from events of contamination and pollution or
in case, the Company is held liable of violations of any
environmental laws or regulations. Eni is notified from time to time of potential liabilities at the Italian sites where the Company has conducted industrial operations in the past. These potential liabilities may arise from both historical Eni operations and the historical operations of companies that Eni has acquired. Many of those potential liabilities relate to certain industrial sites that the Company disposed of, liquidated, closed or shut down in prior years where Group products were produced, processed, stored, distributed or sold, such as chemical plants, mineral-metallurgic plants, refineries and other facilities. At those industrial locations Eni has commenced a number of initiatives to restore and clean-up proprietary or concession areas that were allegedly contaminated and polluted by the Group’s industrial activities. The Group believes that it cannot be held liable for contaminations occurred in past years (as permitted by applicable regulations in case of declaration rendered by a guiltless owner i.e. as a result of Eni’s conduct that was lawful at the time it occurred) or because Eni took over operations from third parties. However, state or local public administrations sued Eni for environmental and other damages and for clean-up and remediation measures in addition to those which were performed by the Company, or which the Company committed to perform. Eni expects remedial and clean-up activities at Eni’s sites to continue in the foreseeable future impacting Eni’s liquidity. As of December 31, 2015, the Group has accrued risk provisions to cope with all existing environmental liabilities whereby both a legal or constructive obligation to perform a clean-up or other remedial actions is in place and the associated costs can be reasonably estimated. The accrued amounts represent the management’s best estimates of the Company’s liability. Management believes that it is possible that in the future Eni may incur significant environmental expenses and liabilities in addition to the amounts already accrued due to: (i) the likelihood of as yet unknown contamination; (ii) the results of ongoing surveys or surveys to be carried out on the environmental status of certain of Eni’s industrial sites as required by the applicable regulations on contaminated sites; (iii) unfavorable developments in ongoing litigation on the environmental status of certain of the Company’s sites where a number of public administrations and the Italian Ministry of the Environment act as plaintiffs; (iv) the possibility that |
new litigation might arise;
(v) the probability that new and stricter environmental
laws might be implemented; and (vi) the circumstance that
the extent and cost of environmental restoration and
remediation programs are often inherently difficult to
estimate leading to underestimation of the future costs
of remediation and restoration, as well as unforeseen
adverse developments both in the final remediation costs
and with respect to the final liability allocation among
the various parties involved at the sites. As a result of those risks, environmental liabilities could be substantial and could have a material adverse effect on Eni’s liquidity, results of operations, consolidated financial condition, business prospects, reputation and shareholders’ value, including dividends and the share price. Laws and regulations related to climate change may
adversely affect the Group’s businesses |
Contents
| 88 | Eni Integrated Annual Report |
|
||
Risk factors and uncertainties |
| use of carbon dioxide that
could have a material adverse effect on Eni’s
liquidity, consolidated results of operations, and
consolidated financial condition. The adoption and implementation of regulations that require reporting of greenhouse gases or otherwise limit emissions of greenhouse gases from our equipment and operations could require us to incur costs to monitor and report on greenhouse gas emissions or install new equipment to reduce emissions of greenhouse gases associated with our operations. Finally, it should be noted some scientists have concluded that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, floods or other climatic events. If any such effects were to occur as a result of climate change or otherwise, they could have an adverse effect on our assets and operations. Risks related to legal proceedings and
compliance with anti-corruption legislation Risks from acquisitions |
Risks deriving from
Eni’s exposure to weather conditions Significant changes in weather conditions in Italy and in the rest of Europe from year to year may affect demand for natural gas and some refined products. In colder years, demand for such products is higher. Accordingly, the results of operations of the Gas & Power segment and, to a lesser extent, the Refining & Marketing business, as well as the comparability of results over different periods may be affected by such changes in weather conditions. In general, the effects of climate change could result in less stable weather patterns, resulting in more severe storms and other weather conditions that could interfere with Eni’s operations and damage Eni’s facilities. Furthermore, Eni’s operations, particularly offshore production of oil and natural gas, are exposed to extreme weather phenomena that can result in material disruption to Eni’s operations and consequent loss or damage of properties and facilities, as well as loss of output, revenues, maintenance and repair expenses and cash flow shortfall. Eni’s crisis management systems may
be ineffective and Eni may be the target of cyber attacks Exposure to financial risk Eni’s primary source of exposure to financial risk is the volatility in commodity prices. Generally, the Group does not hedge its strategic exposure to the commodity risk associated with its plans to find and develop oil and gas reserves, volume of gas purchased under its long-term gas purchase contracts, which are not covered by contracted sales, its refining margins and other activities. The Group’s risk management objectives in addressing commodity risk are to optimize the risk profile of its commercial activities by effectively managing economic margins and safeguarding the value of Eni assets. To achieve this, Eni engages in risk management activities seeking both to hedge Group’s exposures and to profit from short-term market opportunities and trading. Eni is engaged in substantial trading and commercial activities in the physical markets. Eni also uses financial instruments such as futures, options, Over The Counter (OTC) forward contracts, market swaps and contracts for differences related to crude oil, |
Contents
Eni Integrated Annual Report |
|
89 | ||
Risk factors and uncertainties |
| petroleum products, natural
gas and electricity in order to manage the commodity risk
exposure. Eni also uses financial instruments to manage
foreign exchange and interest rate risks. The
Group’s approach to risk management includes
identifying, evaluating and managing the financial risk
using a top-down approach whereby the Board of Directors
is responsible for establishing the Group risk management
strategy and setting the maximum tolerable amounts of
risk exposure. The Group’s Chief Executive Officer
is responsible for implementing the Group risk management
strategy, while the Group’s Chief Financial and Risk
Management Officer is in charge of defining policies and
tools to manage the Group’s exposure to financial
risk, as well as monitoring and reporting activities. Commodity risk The Group’s risk management policies have evolved particularly in response to the deep changes occurred in the competitive landscape of the gas marketing business, volatile gas margins and development of liquid markets to trade spot gas. These policies also contemplate the use of derivative contracts for speculative purposes whereby Eni is seeking to profit from opportunities available in the gas market based, among other things, on its expectations regarding trends in future prices. As part of those trading activities, the Company is implementing strategies of asset-backed trading in order to maximize the economic value of the flexibilities associated with its assets. Management believes that the price risks related to asset-backed trading activities are mitigated by the natural hedge granted by the assets’ availability. These derivative contracts entered into for trading purposes may lead to gains, as well as losses, which, in each case, may be significant. Those derivatives are accounted for through profit and loss, resulting in higher volatility in Eni’s earnings. |
Exchange rate risk Movements in the exchange rate of the euro against the U.S. dollar can have a material impact on Eni’s results of operations. Prices of oil, natural gas and refined products generally are denominated in, or linked to, U.S. dollars, while a significant portion of Eni’s expenses are incurred in euros. Accordingly, a depreciation of the U.S. dollar against the euro generally has an adverse impact on Eni’s results of operations and liquidity because it reduces booked revenues by an amount greater than the decrease in U.S. dollar-denominated expenses and may also result in significant translation adjustments that impact Eni’s shareholders’ equity. The Exploration & Production segment is particularly affected by movements in the U.S. dollar versus the euro exchange rates as the U.S. dollar is the functional currency of a large part of its foreign subsidiaries and therefore movements in the U.S. dollar versus the euro exchange rate affect year-on-year comparability of results of operations. In 2015, the Exploration & Production results of operations were positively affected by trends in the exchange rate of the euro against the U.S. dollar as the euro depreciated on average by 16.5% against the U.S. dollar. Susceptibility to variations in
sovereign rating risk Interest rate risk Liquidity risk |
Contents
| 90 | Eni Integrated Annual Report |
|
||
Risk factors and uncertainties |
| resources following an
ongoing slump in commodity prices. If there are extended
periods of constraints in the financial markets, or if
Eni is unable to access the financial markets (including
cases where this is due to Eni’s financial position
or market sentiment as to Eni’s prospects) at a time
when cash flows from Eni’s business operations may
be under pressure, Eni’s ability to maintain
Eni’s long-term investment program may be impacted
with a consequent effect on Eni’s growth rate, and
may impact shareholder returns, including dividends or
share price. The oil and gas industry is capital intensive. Eni makes and expect to continue to make substantial capital expenditures in its business for the exploration, development, exploitation and production of oil and natural gas reserves. In 2015, we invested approximately euro 10.2 billion in our Exploration & Production segment, down by approximately 17% from 2014 at constant exchange rates, in response to weak oil prices. Our capital budget for the four-year plan 2016-2019 amounts euro 37 billion and is substantially lower than our previous industrial plan (down by an estimated 21% at constant exchange rates) as a result of a planned reduction in spending prompted by significantly depressed commodity prices. We have budgeted euro 9.4 billion for capital expenditure in 2016 relating to continuing operations which are 20% lower than in 2015 at constant exchange rates. We may find that additional reductions in our 2016 capital spending become necessary depending on market conditions. Historically, Eni’s capital
expenditures have been financed with cash generated by
operations, proceeds from asset disposal, borrowings
under its credit facilities and proceeds from the
issuance of debt and bonds. If revenues or Eni’s ability to borrow decrease significantly due to factors like a prolonged decline in crude oil and natural gas prices, Eni might have limited ability to obtain the capital necessary to sustain its planned capital expenditures. If cash generated by operations, cash from asset disposal, or cash available under Eni’s liquidity reserve or its credit facilities is not sufficient to meet capital requirements, the failure to obtain additional financing could result in a curtailment of operations relating to development of Eni’s reserves, which in turn could adversely affect its business, |
financial condition, results
of operations, and cash flows and its ability to achieve
its growth plans. With respect to the 2016-2019 business plan in particular, management expects to deliver approximately euro 7 billion of additional cash flows from asset disposals, the main part of which will comprise the divestment of stakes in our exploration assets thereby in essence monetizing some of the Group’s recent exploration successes and reserves. These additional cash flows are intended to provide funding to support organic growth and our planned shareholders distributions in a manner consistent with our target capital structure. The Company is seeking to complete such disposals in large part within 2016-2017. However, asset disposals are subject to execution risk and may fail to be completed, and the proceeds received from such disposals may not reflect values that management currently believes are achievable, particularly if the disposals are carried out in difficult market conditions. The failure to achieve the planned disposal program could negatively affect the achievement of our financial targets forcing us to either curtail capital expenditure thus hampering growth or take on more finance debt. These factors could also negatively affect shareholders’ returns, including the amount of cash available for dividend distribution as well as the share price. In addition, funding Eni’s capital expenditures with additional debt will increase its leverage and the issuance of additional debt will require a portion of Eni’s cash flows from operations to be used for the payment of interest and principal on its debt, thereby reducing its ability to use cash flows to fund capital expenditures and dividends. Credit risk |
Contents
Eni Integrated Annual Report |
|
91 | ||
Risk factors and uncertainties |
| Digital infrastructure is
an important part of maintaining Eni’s operations. A
breach of Eni’s digital security could result in
serious damage to business operations, personal injury,
damage to assets, harm to the environment, breaches of
regulations, litigation, legal liabilities and reparation
costs The reliability and security of Eni’s digital infrastructure is critical to maintaining the availability of Eni’s business applications, including the reliable operation of technology in Eni’s various business operations and the collection and processing of financial and operational data, as well as the confidentiality of certain third-party information. If Eni’s systems for protecting Eni’s digital security prove to be ineffective, either due to intentional actions such as cyber attacks or due to negligence, Eni could be adversely affected by, among other things, loss or damage of intellectual property, proprietary information, or customer data, having Eni’s business operations interrupted, and increased costs to prevent, respond to, or mitigate potential risks to Eni’s digital infrastructure. Furthermore, in some circumstances, failures to protect digital infrastructure could result in injury to people, damage to assets, harm to the environment, breaches of regulations, litigation, legal liabilities and reparation costs. The Company’s auditors, like all other independent registered public accounting firms operating in Italy, are not permitted to be subject to inspection by the Public Company Accounting |
Oversight Board, and
accordingly, investors may be deprived of the benefits of
such inspection The independent registered public accounting firm that issues the audit reports included in Eni’s annual reports filed with the U.S. SEC, as auditor of companies that are traded publicly in the United States and firms registered with the Public Company Accounting Oversight Board ("PCAOB"), is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with U.S. SEC rules and PCAOB professional standards. Because Eni’s auditor is a registered public accounting firm in Italy, a jurisdiction where the PCAOB is currently unable under Italian law to conduct inspections pending the mutual agreement between the PCAOB and the Italian Authorities, Eni’s auditor, like all other independent registered public accounting firms in Italy, is currently out of the reach of PCAOB inspections. PCAOB inspections of audit firms have identified holes and deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections in Italy prevents the PCAOB from regularly evaluating Eni’s auditor’s audits and quality control procedures. As a result, the inability of the PCAOB to conduct inspections of auditors in Italy may deprive Eni’s investors of the benefits of PCAOB inspections. |
Contents
| 92 | Eni Integrated Annual Report |
|
||
Outlook |
Outlook
| The global macroeconomic
outlook for 2016 is characterized by a number of risks
and uncertainties, mainly due to the continued slowdown
in China’s industrial activity, the Eurozone and
other commodity-exporting countries. After hitting
multi-year lows of below $30 per barrel, the price of
crude oil is expected to continue to be weak due to
structural imbalances in the marketplace driven by
oversupply and renewed uncertainties surrounding the pace
of future energy demand in the medium and long-term. Based on this macroeconomic outlook, Eni’s management has revised downwards its pricing assumptions of the Brent crude oil marker utilized in each of the periods of the Company’s strategic plan 2016-2019: particularly the long-term reference price has been reduced to 65 dollar-a-barrel, down from the 90-dollar case utilized in the previous planning assumptions. In order to cope with the anticipated negative impact of the scenario on the E&P results from operations and cash flow, management is planning to increase efforts to optimize capex and reduce operating costs by exploiting the deflationary pressure induced by the fall in crude oil prices. In the G&P sector, management anticipates a challenging environment pressured by weak demand growth and oversupplies. The Company confirms its strategy to renegotiate long-term supply contracts in order to align the supply terms with market conditions, as well as boost profitability in its high-value businesses (LNG, gas retail and trading). In the R&M sector management expects still profitable refining margin, although lower than in 2015. In this context, business strategies will be focused on the optimization of refinery processes and costs as well as on the enhancement of results in marketing. Management’s forecasts for the
Group’s production and sale metrics are explained
below: |
Natural gas sales:
against the backdrop of weak demand and strong
competition, management expects gas sales to be down
y-o-y in line with an expected reduction of the
contractual minimum take of long-term supply contracts.
Management plans to retain its market share in the large
customers and retail segments also increasing the value
of the existing customer base by developing innovative
commercial propositions, by integrating services to the
supply of the commodity and by optimizing operations and
commercial activities; - Refinery intake on own account: refinery intake are expected flat y-o-y excluding the effect of the disposal of Eni’s refining capacity in CRC refinery in Czech Republic finalized on April 30, 2015; - Refined products sales in Italy and in the Rest of Europe: against the backdrop of weak demand growth and strong competition, management expects to consolidate volume and market share in the Italian retail market also increasing the value of the existing customer base by leveraging our offer differentiation, innovation in products and services as well as efficiency in logistic and commercial activities. In 2016, management expects
to carry out a number of initiatives intended to reduce
capital spending by approximately 20% y-o-y on a constant
exchange rate basis by re-phasing and rescheduling
capital projects, being increasingly selective with
exploration plays and renegotiating contracts for the
supply of capital goods in order to cope with the slump
in crude oil prices. Those initiatives are expected to
have a limited impact on our plans to grow production in
the short and medium term. Management forecasts that
capex will be 100%-funded by cash flow from operations
under a 50 dollar-a-barrel scenario. Operating costs per
boe is expected to be reduced by 11% y-o-y. |
Contents
| Acceptance of Italian
responsible payments code Coherently with Eni’s policy on transparency and accuracy in managing its suppliers, Eni SpA adhered to the Italian responsible payments code established by Assolombarda in 2014. During the year, payments to Eni’s suppliers were made within 62 days, in line with contractual provisions. Continuing listing
standards provided by Article No. 36 of Italian exchanges
regulation (adopted with Consob Decision No. 16191/2007
as amended) about issuers that control subsidiaries
incorporated or regulated in accordance with laws of
extra-EU Countries |
- as of December 31, 2015,
ten of Eni’s subsidiaries: Burren Energy (Bermuda)
Ltd, Eni Congo SA, Eni Norge AS, Eni Petroleum Co Inc,
NAOC - Nigerian Agip Oil Co Ltd, Nigerian Agip
Exploration Ltd, Burren Energy (Congo) Ltd, Eni Finance
USA Inc, Eni Trading & Shipping Inc and Eni Canada
Holding - fall within the scope of the new continuing
listing standards. Eni has already adopted adequate
procedures to ensure full compliance with the new
regulations; - the Company has already adopted adequate procedures to ensure full compliance with the regulation. Branches Subsequent events |
Contents
| Reporting criteria Eni’s
reporting system is structured with a multi-channel
approach which allows for different levels of analysis
and communication methods to reach all Eni’s
stakeholders in an effective, timely and immediate way. Reporting principles |
The data related to the
years 2013 and 2014 can differ slightly from those
previously published as a result of consolidating data
that became available after the publication of the
documents. For the same reason, the data on the year 2015
are the best estimates possible with the ones available
at the time of writing of this prospectus. Reporting
perimeter |
Contents |
Eni Integrated Annual Report |
95 | ||
Integrated performances |
| Fuel value and increase explorative resources and growth in upstream cash generation |
| 2013 | 2014 | 2015 | |||||||||||
| Financial capital | Capital expenditure | (euro million) | 10,475 | 10,524 | 10,234 | ||||||||
| Opex per boe | ($/boe) | 8.3 | 8.4 | 7.2 | |||||||||
| Cash flow per boe | ($/boe) | 31.9 | 30.1 | 20.1 | |||||||||
| Productive capital | Proved hydrocarbon reserves | (mmboe) | 6,535 | 6,602 | 6,890 | ||||||||
| Reserves life index | (years) | 11.1 | 11.3 | 10.7 | |||||||||
| Organic reserves replacement ratio | (%) | 105 | 112 | 148 | |||||||||
| Natural
capital |
Direct GHG emission | (million tonnes CO2 eq) | 27.4 | 23.4 | 22.8 | ||||||||
| - of which CO2 eq from flaring | 9.13 | 5.73 | 5.51 | ||||||||||
| CO2 eq emissions/100% operated hydrocarbon gross production | (tonnes CO2 eq/kboe) | 31.8 | 27.5 | 25.0 | |||||||||
| Volume of hydrocarbons sent to process flaring | (mmcm/d) | 9.10 | 4.60 | 4.28 | |||||||||
| Oil spills due to operations (>1 bbl) | (bbl) | 1,728 | 936 | 1,146 | |||||||||
| Produced water re-injected | (%) | 55 | 56 | 56 | |||||||||
| Social and relationship capital | Investments on territories following agreements, conventions and PSA (community investment) | (euro million) | 53 | 63 | 71 | ||||||||
| Intellectual capital |
Existing patents | (number) | 2,370 | 2,016 | 2,088 | ||||||||
| First patent filing applications | 8 | 15 | 8 | ||||||||||
| Human capital |
Employees at year end | (number) | 12,352 | 12,681 | 12,728 | ||||||||
| Employees outside Italy | 8,219 | 8,147 | 8,156 | ||||||||||
| - of which locals | 6,476 | 6,441 | 6,266 | ||||||||||
| Female employees | 2,442 | 2,462 | 2,453 | ||||||||||
| Number of hiring | 1,324 | 681 | 387 | ||||||||||
| Injury frequency rate of total workforce | (No. of accidents per million worked hours) | 0.23 | 0.23 | 0.13 | |||||||||
| Safety expenditure and expenses | (euro million) | 150 | 100 | 190 | |||||||||
| No. employees assessment during the year/No. planned assessment for the year | (%) | 79 | 53 | 66 | |||||||||
| Employees covered by performance assessment tools (senior managers, managers/supervisors and young graduates) | 65 | 62 | 63 | ||||||||||
| Training expenditure | (euro million) | 44.4 | 29.0 | 17.6 | |||||||||
| Profitability and sustainable cash generation in the Gas & Power segment |
| 2013 | 2014 | 2015 | ||||||||||||||
| Financial capital |
Adjusted operating profit (loss) | (euro million) | (622 | ) | 168 | (126 | ) | |||||||||
| Operating expenses reduction | (%) | (10 | ) | (15 | ) | (28 | ) | |||||||||
| Capital expenditure | (euro million) | 229 | 172 | 154 | ||||||||||||
| Productive capital |
Worldwide gas sales | (bcm) | 93.17 | 89.17 | 90.88 | |||||||||||
| LNG sales | 12.4 | 13.3 | 13.5 | |||||||||||||
| Customers in Italy | (million) | 8.00 | 7.93 | 7.88 | ||||||||||||
| Electricity sold | (TWh) | 35.05 | 33.58 | 34.88 | ||||||||||||
| Natural capital |
Direct GHG emissions | (million tonnes CO2 eq) | 11.3 | 10.1 | 10.6 | |||||||||||
| CO2 eq emissions/kWh eq (EniPower) | (g CO2 eq/kWh eq) | 408.78 | 410.67 | 410.09 | ||||||||||||
| Power generation (EniPower) | (TWh) | 23.14 | 21.04 | 22.34 | ||||||||||||
| NOx emissions/kWh eq (EniPower) | (g NO2 eq/KWh eq) | 0.16 | 0.15 | 0.14 | ||||||||||||
| SOx emissions/kWh eq (EniPower) | (g SO2 eq/kWh eq) | 0.017 | 0.001 | 0.001 | ||||||||||||
| Water withdrawals/kW eq produced (EniPower) | (cm/kWh eq) | 0.017 | 0.017 | 0.015 | ||||||||||||
| Social and relationship capital |
Customer satisfaction rate | (scale from 0 to 100) | 80.0 | 81.4 | 85.6 | |||||||||||
| Intellectual capital |
Existing patents | (number) | 56 | 43 | 7 | |||||||||||
| Human capital |
Employees at year end | (number) | 4,791 | 4,469 | 4,388 | |||||||||||
| Employees outside Italy | 2,550 | 2,437 | 2,402 | |||||||||||||
| Female employees | 1,537 | 1,411 | 1,363 | |||||||||||||
| Number of hiring | 226 | 116 | 131 | |||||||||||||
| Injury frequency rate of total workforce | (No. of accidents per million worked hours) | 1.32 | 0.46 | 0.49 | ||||||||||||
| Safety expenditure and expenses | (euro million) | 9 | 7 | 7 | ||||||||||||
| Employees covered by performance assessment tools (senior managers, managers/supervisors and young graduates) | (%) | 63 | 72 | 69 | ||||||||||||
| Training hours | (number) | 147,011 | 92,701 | 98,579 | ||||||||||||
| Training expenditure | (euro million) | 1.9 | 1.2 | 1.9 | ||||||||||||
Contents
| 96 | Eni Integrated Annual Report |
|
||
Integrated performances |
| EBIT adjusted and free cash flow steadily positive in the Refining & Marketing segment |
| 2013 | 2014 | 2015 | |||||||||||||
| Financial capital |
Adjusted operating profit (loss) | (euro million) | (472 | ) | (65 | ) | 387 | ||||||||
| Refining break-even margins | ($/bl) | 6 | 5 | ||||||||||||
| Refining capital expenditure | (euro million) | 462 | 362 | 282 | |||||||||||
| Productive capital |
Service stations in Europe at year end | (number) | 6,386 | 6,220 | 5,846 | ||||||||||
| Balanced capacity of refineries | (kbbl/d) | 787 | 617 | 548 | |||||||||||
| Average plant utilization rate | (%) | 66 | 78 | 95 | |||||||||||
| Natural capital |
Direct GHG emissions | (million tonnes CO2 eq) | 5.2 | 5.3 | 5.1 | ||||||||||
| GHG emissions/refining throughputs (a) | (tonnes CO2 eq/kt) | 252.08 | 286.92 | 237.39 | |||||||||||
| SOx emissions/refining throughputs (a) | (tonnes SO2 eq/kt) | 0.53 | 0.32 | 0.29 | |||||||||||
| SOx emissions | (ktonnes SO2 eq) | 10.80 | 5.70 | 5.97 | |||||||||||
| Social
and relationship capital |
Customer satisfaction index | (likert scale) | 8.1 | 8.2 | 8.3 | ||||||||||
| Customers involved in the satisfaction survey | (number) | 29,863 | 24,081 | 23,628 | |||||||||||
| Intellectual capital |
Existing patents | (number) | 839 | 662 | 648 | ||||||||||
| First patent filing applications | 6 | 16 | 4 | ||||||||||||
| Human capital |
Employees at year end | (number) | 6,469 | 5,823 | 5,234 | ||||||||||
| Female employees | 1,176 | 1,045 | 911 | ||||||||||||
| Injury frequency rate of total workforce | (No. of accidents per million worked hours) | 1.05 | 0.89 | 0.80 | |||||||||||
| Safety expenditure and expenses | (euro million) | 43 | 31 | 27 | |||||||||||
| Employees covered by performance assessment tools (senior managers, managers/supervisors and young graduates) | (%) | 48 | 40 | 51 | |||||||||||
| Training hours | (number) | 244,279 | 163,321 | 157,321 | |||||||||||
| Training expenditure | (euro million) | 3.3 | 2.5 | 1.9 | |||||||||||
| Focus on efficiency |
| 2013 | 2014 | 2015 | |||||||||||
| Financial capital |
Capital expenditure | (euro million) | 11,584 | 11,264 | 10,775 | ||||||||
| Changes in working capital | 121 | 2,148 | 4,450 | ||||||||||
| Purchases, services and other | 78,108 | 74,067 | 53,983 | ||||||||||
| Natural capital |
Net consumption of primary resources | (toe) | 11,675,939 | 10,606,496 | 10,910,143 | ||||||||
| - of which: natural gas | 9,809,086 | 9,107,522 | 9,245,994 | ||||||||||
| - of which: oil products | 1,767,269 | 1,423,944 | 1,572,924 | ||||||||||
| - of which: other fuels | 99,583 | 75,030 | 91,225 | ||||||||||
| Energy consumptions from productive activities/100% operated hydrocarbon gross production | (GJ/toe) | 1.54 | 1.67 | 1.62 | |||||||||
| Energy Intensity Index (R&M) | (%) | 76.0 | 77.8 | 79.9 | |||||||||
| Total water withdrawals | (mmcm) | 1,193 | 1,037 | 872 | |||||||||
| Human capital |
Days of absence due to accidents - Total workforce | (number) | 4,418 | 3,988 | 2,312 | ||||||||
| Total employment disputes | 869 | 864 | 959 | ||||||||||
| Disputes/employees ratio | 326/869 | 370/864 | 470/959 | ||||||||||
(a) The KPI refers only to the throughputs of the traditional refineries processing.
Contents
Eni Integrated Annual Report |
|
97 | ||
Integrated performances |
| Other significant performances |
| 2013 | 2014 | 2015 | ||||||||||||
| Governance | Members of Eni’s Board of Directors | (number) | 9 | 9 | 9 | |||||||||
| - executive | 1 | 1 | 1 | |||||||||||
| - non executive | 8 | 8 | 8 | |||||||||||
| - independent (a) | 7 | 7 | 7 | |||||||||||
| - non independent | 2 | 2 | 2 | |||||||||||
| - members of minorities | 3 | 3 | 3 | |||||||||||
| Presence of women in the Board of Directors of Eni Group companies | (%) | 17 | 26 | 27 | ||||||||||
| Presence of women in the Board of Statutory Auditors of Eni Group companies | 29 | 35 | 34 | |||||||||||
| Human capital |
Employees at year end | (number) | 29,176 | 28,597 | 28,246 | |||||||||
| - men | 21,672 | 21,227 | 20,992 | |||||||||||
| - women | 7,504 | 7,370 | 7,254 | |||||||||||
| Local employees abroad by professional category | 10,510 | 10,442 | 9,975 | |||||||||||
| - of which senior manager | 97 | 83 | 71 | |||||||||||
| - of which manager/supervisors | 1,849 | 1,883 | 1,869 | |||||||||||
| - of which employees | 6,150 | 6,181 | 5,902 | |||||||||||
| - of which workers | 2,414 | 2,295 | 2,133 | |||||||||||
| Female managers (senior manager and manager/supervisors) | (%) | 23.5 | 23.8 | 24.2 | ||||||||||
| Injury frequency rate of total workforce | (No. of accidents per million worked hours) | 0.43 | 0.33 | 0.19 | ||||||||||
| Employees injury frequency rate | (No. of accidents per million worked hours) | 0.28 | 0.29 | 0.21 | ||||||||||
| Contractors injury frequency rate | (No. of accidents per million worked hours) | 0.49 | 0.35 | 0.18 | ||||||||||
| Fatality index of total workforce | (Fatality injuries per one hundred millions of worked hours) | 0.00 | 1.08 | 0.39 | ||||||||||
| Total Recordable Injury Rate of employees | (Total recordable injuries/worked hours) x 1,000,000 | 0.41 | 0.35 | 0.34 | ||||||||||
| Total Recordable Injury Rate of contractors | (Total recordable injuries/worked hours) x 1,000,000 | 0.90 | 0.75 | 0.43 | ||||||||||
| Total Recordable Injury Rate of workforce | (Total recordable injuries/worked hours) x 1,000,000 | 0.75 | 0.62 | 0.40 | ||||||||||
| Safety expenditure and expenses | (euro million) | 205 | 143 | 239 | ||||||||||
| Training hours | (khours) | 1,493 | 1,032 | 915 | ||||||||||
| Training expenditure | (euro million) | 54.63 | 37.15 | 27.51 | ||||||||||
| Social
and relationship capital |
Total spending for the territory | (euro million) | 100 | 96 | 97 | |||||||||
| Suppliers used | (number) | 13,573 | 11,342 | 9,268 | ||||||||||
| Total procurement | (euro million) | 19,043 | 22,955 | 19,514 | ||||||||||
| Suppliers subjected to qualification procedures including screening on Human Rights | (number) | 2,434 | 3,846 | 2,806 | ||||||||||
| SA 8000 Audits carried out | 23 | 20 | 16 | (b) | ||||||||||
| Eni security personnel trained on Human Rights | 235 | 143 | 61 | |||||||||||
| Security contracts containing clauses on Human Rights | (%) | 83 | 95 | 85 | ||||||||||
| Intellectual capital |
R&D expenditure (c) | (euro million) | 142 | 134 | 139 | |||||||||
| First patent filing applications | (number) | 35 | 50 | 22 | ||||||||||
| - of which filing of renewable energy | 21 | 17 | 11 | |||||||||||
| Existing patents | 3,644 | 3,056 | 3,162 | |||||||||||
| Natural capital |
Direct total GHG emissions | (million tonnes CO2 eq) | 43.9 | 38.9 | 38.5 | |||||||||
| NOx emissions | (tonnes NO2 eq) | 74,657 | 62,238 | 66,523 | ||||||||||
| SOx emissions | (tonnes SO2 eq) | 22,062 | 19,124 | 10,501 | ||||||||||
| NMVOC (Non Methane Volatile Organic Compounds) emissions | (tonnes) | 39,060 | 22,664 | 17,227 | ||||||||||
| TSP (Total Suspended Particulate) emissions | 2,103 | 1,578 | 1,763 | |||||||||||
| Total number of oil spills (> 1 bbl) | (number) | 382 | 362 | 247 | ||||||||||
| Total volume of oil spills (> 1 bbl) | (bbl) | 7,764 | 15,562 | 16,450 | ||||||||||
| - from sabotage | 6,002 | 14,401 | 14,847 | |||||||||||
| - due to operations | 1,762 | 1,161 | 1,603 | |||||||||||
| Total water withdrawals | (mmcm) | 1,193 | 1,037 | 872 | ||||||||||
| - of which sea water | 1,114 | 968 | 801 | |||||||||||
| - of which fresh water | 61 | 59 | 58 | |||||||||||
| - of which salt/salty water taken from underground or surface sources | 18 | 10 | 13 | |||||||||||
(a) This refers to independence according to
law, mentioned by Eni Statute; 6 out 9 directors are indipendent
pursuant to Code of Self-regulation.
(b) Data include SA800 Audits of 8 suppliers/sub-suppliers that
were performed in Ecuador, Vietnam, Algeria and Ghana as well as
8 follow-ups of audits performed in 2014 in Mozambique,
Indonesia, Angola and Pakistan.
(c) Net of general and administrative costs.
Contents
| 98 | Eni Integrated Annual Report |
|
||
Integrated performances |
Transparency on payments made to Governments for the purpose of the commercial development of hydrocarbons
| In the matter of transparency of payments made to Governments in the extraction of hydrocarbons, Eni has been working to voluntarily achieve a higher degree of disclosure on payments, before the entry into force of transparency legislation and alongside the Company’s continued support to the Extractive Industries Transparency Initiative (EITI) and anticipating the reporting obligations on payments transparency established by EU Directive 2013/34 which the Italian legislator has enacted with Legislative Decree No. 139 of August 18, 2015 effective for payments made on or after January 1, 2016 to be reported in 2017. Therefore information provided below has been furnished on voluntary basis and does not constitute compliance with a reporting obligations. In particular, as Eni believes that the active involvement of governments is key to a sustainable use of revenues, the company has reached out to all its counterparts in upstream contracts in order to share the company’s commitment on transparency and request their consent on disclosing taxes, royalties | and the other forms of payment foreseen by the EITI Standard and the EU Directives. Therefore, Eni voluntarily discloses payments ("on a cash basis") to governments (including to local authorities and other governmental authorities) for the year 2015. Payments refer to those Countries whose governments/local authorities/governmental counterparts provided consent to this disclosure. Data in the following table correspond to the Company’s accounting records and include data for the parent company and consolidated subsidiaries. Payments to governments referring to petroleum activities operated by Eni are disclosed on a 100% basis, when Eni paid on behalf of the Joint Venture partners. Payments made by Joint Venture partners on behalf of Eni in those activities where Eni is not the operator are not reported. Payment categories are in line with EITI Standard and EU directives’ payment categories. The following disclosure represents approximately 75% of Eni’s 2015 production (80% when including the two countries adhering to EITI listed below). | |
| (euro thousand) | Year | Host government’s entitlement | National Oil Companies entitlement | Profit taxes | Royalties | Bonus | Fees | Other significant payments and benefits | Capital expenditure (*) | Revenues from sales of equity hydrocarbons (*) | ||||||||||
| Angola | 2015 | 46,335 | 193,814 | 80,202 | 33 | 1,447 | 1,354,317 | 1,585,505 | ||||||||||||||
| Australia | 2015 | 4,390 | 520 | 14,620 | 91,657 | |||||||||||||||||
| China | 2015 | 1,484 | 136 | 11,248 | 62,060 | |||||||||||||||||
| Croatia | 2015 | 4,607 | 2,597 | 36,958 | ||||||||||||||||||
| Cyprus | 2015 | 600 | 112,189 | |||||||||||||||||||
| Denmark | 2015 | |||||||||||||||||||||
| Ecuador | 2015 | 41,106 | (a) | 8,757 | 21,960 | 124,851 | ||||||||||||||||
| Gabon | 2015 | 21 | 1,416 | 80,089 | ||||||||||||||||||
| Ghana | 2015 | 1,388 | 203,428 | |||||||||||||||||||
| Indonesia | 2015 | 27,669 | 39 | 732,705 | 165,603 | |||||||||||||||||
| Iraq | 2015 | 15,843 | 11,647 | 481,312 | 576,265 | |||||||||||||||||
| Ireland | 2015 | 2,057 | ||||||||||||||||||||
| Italy | 2015 | 301,871 | 2,202 | 1,868 | 726,832 | 2,123,516 | ||||||||||||||||
| Kenya | 2015 | 161 | 3,825 | |||||||||||||||||||
| Libya | 2015 | 1,554,740 | 1,983,759 | 222,621 | 45,065 | 444,061 | 3,840,949 | |||||||||||||||
| Myanmar | 2015 | 901 | 5,529 | |||||||||||||||||||
| Nigeria | 2015 | 11,277 | 163,789 | 168,537 | 9,681 | 28,664 | 451,078 | 1,559,178 | ||||||||||||||
| Norway | 2015 | 41,411 | 8,565 | 1,115,747 | 1,383,956 | |||||||||||||||||
| Pakistan | 2015 | 27,122 | 30,584 | 724 | 55,443 | 279,963 | ||||||||||||||||
| Portugal | 2015 | 523 | 160 | 3,589 | ||||||||||||||||||
| Rep. of Congo | 2015 | 40,098 | 9,433 | 173,989 | 162,855 | 3,780 | 888,754 | 1,284,200 | ||||||||||||||
| Russia | 2015 | 1,439 | 55 | |||||||||||||||||||
| The Netherlands | 2015 | 275 | ||||||||||||||||||||
| The United Kingdom | 2015 | 126,713 | 926 | 200,746 | 907,974 | |||||||||||||||||
| Timor Leste | 2015 | 47,965 | 21,735 | 1,693 | 509 | 16,909 | 163,479 | |||||||||||||||
| Ukraine | 2015 | 98 | 13 | |||||||||||||||||||
| USA | 2015 | 9,401 | 40,290 | 4,126 | 660,009 | 1,092,182 | ||||||||||||||||
| Vietnam | 2015 | 451 | 563 | 16,080 | ||||||||||||||||||
| EITI DATA (**) | ||||||||||||||||||||||
| Kazakhstan | 2014 | 343,922 | (94,344 | ) (b) | ||||||||||||||||||
| Mozambique | 2013-2014 | 53,280 | (c) | 301,132 | (d) |
(*) Accrual basis.
(**) The reported data refer to the last EITI disclosure issued
in relation to EITI countries.
(a) The data include the payment of $ 33,136 thousands for
previous years taxes subject to tax dispute.
(b) Mainly refers to VAT reimbursement of 23,226,728 thousands of
Tenge relating to Agip Caspian Sea BV Branch.
(c) Including taxes on employees and withholding taxes on
suppliers.
(d) Payment of $ 400,000 thousands to fiscal Authority of
Mozambique relating to taxes on disposal of 28.57% shares of Eni
East Africa SpA.
| Royalties paid in Italy in the 2013-2015 period | ||||||
| (euro thousand) | 2013 | 2014 | 2014 | |||
| Royalties paid (a) | 298,383 | 327,187 | 301,871 | |||
| - of which to State | 138,302 | 149,454 | 126,172 | |||
| - of which to Regions | 125,596 | 130,611 | 122,684 | |||
| - of which to Basilicata | 91,862 | 94,925 | 86,652 | |||
| - of which to municipalities | 34,486 | 47,123 | 53,015 | |||
(a) The data include Eni SpA (Exploration & Production), EniMed, Società Adriatica Idrocarburi and Società Ionica Gas.
Contents
| The glossary of oil and gas
terms is available on Eni’s web page at the address eni.com.
Below is a selection of the most frequently used terms. Financial terms - Dividend Yield Measures the return on a share based on dividends for the year. Calculated as the ratio of dividends per share of the year and the average reference price of shares in the last month of the year. Generally, companies tend to keep a constant dividend yield, as shareholders compare this indicator with the yield of other shares or other financial instruments (e.g. bonds). - Leverage Is a measure of a company’s debt, calculated as the ratio between net financial debt and shareholders’ equity, including minority interests. - ROACE (Return On Average Capital Employed) Is the return on average capital invested, calculated as the ratio between net income before minority interests, plus net financial charges on net financial debt, less the related tax effect and net average capital employed. - Coverage Financial discipline ratio, calculated as the ratio between operating profit and net finance charges. - Current ratio Measures the capability of the company to repay short-term debt, calculated as the ratio between current assets and current liabilities. - Debt coverage Rating companies use the debt coverage ratio to evaluate debt sustainability. It is calculated as the ratio between net cash provided by operating activities and net borrowings, less cash and cash-equivalents, Securities held for non-operating purposes and financing receivables for non operating purposes. - Profit per boe Measures the return per oil and natural gas barrel produced. It is calculated as the ratio between Results of operations from E&P activities (as defined by FASB Extractive Activities - oil&gas Topic 932) and production sold. - Opex per boe Measures efficiency in the oil&gas development activities, calculated as the ratio between operating costs (as defined by FASB Extractive Activities - oil&gas Topic 932) and production sold. - Cash flow per boe Represents cash flow per each boe of hydrocarbon produced, less non-monetary items. Calculated as the ratio between Results of operations from E&P activities, net of depreciation, depletion, amortization and impairment and |
exploration expenses (as
defined by FASB Extractive Activities - oil&gas Topic
932) and volumes of oil and gas produced. - Finding & Development cost per boe Represents Finding & Development cost per boe of new proved or possible reserves. It is calculated as the overall amount of exploration and development expenditure, the consideration for the acquisition of possible and probable reserves as well as additions of proved reserves deriving from improved recovery, extensions, discoveries and revisions of previous estimates (as defined by FASB Extractive Activities - oil&gas Topic 932). Operating activities - Average reserve life index Ratio between the amount of reserves at the end of the year and total production for the year. - Barrel/BBL Volume unit corresponding to 159 liters. A barrel of oil corresponds to about 0.137 metric tons. - Boe (Barrel of Oil Equivalent) Is used as a standard unit measure for oil and natural gas. From July 1, 2012, Eni has updated the conversion rate of gas to 5,492 cubic feet of gas equals 1 barrel of oil (it was 5,550 cubic feet of gas per barrel in previous reporting periods). - Conversion Refinery process allowing the transformation of heavy fractions into lighter fractions. Conversion processes are cracking, visbreaking, coking, the gasification of refinery residues, etc. The ration of overall treatment capacity of these plants and that of primary crude fractioning plants is the conversion rate of a refinery. Flexible refineries have higher rates and higher profitability. - Emissions of NOx (Nitrogen Oxides) Total direct emissions of nitrogen oxides deriving from combustion processes in air. They include NOx emissions from flaring activities, sulphur recovery processes, FCC regeneration, etc. They include NO and NO2 emissions and exclude N2O emissions. - Emissions of SOx (Sulphur Oxides) Total direct emissions of sulfur oxides including SO2 and SO3 emissions. Main sources are combustion plants, diesel engines (including maritime engines), gas flaring (if the gas contains H2S), sulphur recovery processes, FCC regeneration, etc. - Enhanced recovery Techniques used to increase or stretch over time the production of wells. - Green House Gases (GHG) Gases in the atmosphere, transparent to solar radiation, can consistently trap infrared radiation emitted by the earth’s surface, atmosphere and |
Contents
| 100 | Eni Integrated Annual Report |
|
||
Glossary |
| clouds. The six relevant
greenhouse gases covered by the Kyoto Protocol are carbon
dioxide (CO2), methane (CH4),
nitrous oxide (N2O), hydrofluorocarbons
(HFCs), perfluorocarbons (PFCs) and sulfur hexafluoride
(SF6). GHGs absorb and emit radiation at
specific wavelengths within the range of infrared
radiation determining the so called greenhouse phenomenon
and the related increase of earth’s average
temperature. - Infilling wells Infilling wells are wells drilled in a producing area in order to improve the recovery of hydrocarbons from the field and to maintain and/or increase production levels. - LNG Liquefied Natural Gas obtained through the cooling of natural gas to minus 160 °C at normal pressure. The gas is liquefied to allow transportation from the place of extraction to the sites at which it is transformed and consumed. One ton of LNG corresponds to 1,400 cubic meters of gas. - LPG Liquefied Petroleum Gas, a mix of light petroleum fractions, gaseous at normal pressure and easily liquefied at room temperature through limited compression. - Mineral Potential (Potentially recoverable hydrocarbon volumes) Estimated recoverable volumes which cannot be defined as reserves due to a number of reasons, such as the temporary lack of viable markets, a possible commercial recovery dependent on the development of new technologies, or for their location in accumulations yet to be developed or where evaluation of known accumulations is still at an early stage. - Natural gas liquids Liquid or liquefied hydrocarbons recovered from natural gas through separation equipment or natural gas treatment plants. Propane, normal-butane and isobutane, isopentane and pentane plus, that used to be defined natural gasoline, are natural gas liquids. - Oil spills Discharge of oil or oil products from refining or oil waste occurring in the normal course of operations (when accidental) or deriving from actions intended to hinder operations of business units or from sabotage by organized groups (when due to sabotage or terrorism). - Over/underlifting Agreements stipulated between partners regulate the right of each to its share in the production of a set period of time. Amounts different from the agreed ones determine temporary over/underlifting situations. - Production Sharing Agreement (PSA) Contract in use in African, Middle Eastern, Far Eastern and Latin American countries, among others, regulating relationships between states and oil companies with regard to the exploration and production of hydrocarbons. The mineral right is awarded to the national oil company jointly with the foreign oil company that has an exclusive right to perform exploration, development and production activities and can enter into agreements with other local or international entities. In this type of contract the national oil company assigns to the international contractor the task of performing exploration and production with the contractor’s |
equipment and financial
resources. Exploration risks are borne by the contractor
and production is divided into two portions: "cost
oil" is used to recover costs borne by the
contractor and "profit oil" is divided between
the contractor and the national company according to
variable schemes and represents the profit deriving from
exploration and production. Further terms and conditions
of these contracts may vary from country to country. - Proved reserves Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from know reservoirs, and under existing economic conditions. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. - Reserves Quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project. Reserves can be: (i) developed reserves quantities of oil and gas anticipated to be through installed extraction equipment and infrastructure operational at the time of the reserves estimate; (ii) undeveloped reserves: oil and gas expected to be recovered from new wells, facilities and operating methods. - Ship-or-pay Clause included in natural gas transportation contracts according to which the customer for which the transportation is carried out is bound to pay for the transportation of the gas also in case the gas is not transported. - Take-or-pay Clause included in natural gas purchase contracts according to which the purchaser is bound to pay the contractual price or a fraction of such price for a minimum quantity of the gas set in the contract also in case it is not collected by the customer. The customer has the option of collecting the gas paid and not delivered at a price equal to the residual fraction of the price set in the contract in subsequent contract years. - Upstream/downstream The term upstream refers to all hydrocarbon exploration and production activities. The term mid-downstream includes all activities inherent to oil industry subsequent to exploration and production. Process crude oil and oil-based feedstock for the production of fuels, lubricants and chemicals, as well as the supply, trading and transportation of energy commodities. It also includes the marketing business of refined and chemicals products. - Workover Intervention on a well for performing significant maintenance and substitution of basic equipment for the collection and transport to the surface of liquids contained in a field. |
Contents
Contents
Table of Contents
Annual Report on Form 20-F 2015
Rome, April 12, 2016 - Today Eni’s Annual Report on Form 20-F for the year ended December 31, 2015, has been filed with the US Securities and Exchange Commission (SEC).
The Annual Report on Form 20-F 2015 is available on the Publications section of Eni’s website, www.eni.com.
Shareholders can receive a hard copy of Eni’s Annual Report on Form 20-F 2015, free of charge, by filling in the request form found in the Publications section or by emailing a request to segreteriasocietaria.azionisti@eni.com or to investor.relations@eni.com.
* * *
Company Contacts
Press Office: Tel. +39.0252031875 - +39.0659822030
Freephone for shareholders (from Italy): 800940924
Freephone for shareholders (from abroad): +80011223456
Switchboard: +39-0659821
ufficio.stampa@eni.com
segreteriasocietaria.azionisti@eni.com
investor.relations@eni.com
Web site: www.eni.com
* * *
Eni
Società per Azioni Rome, Piazzale Enrico Mattei, 1
Share capital: euro 4,005,358,876 fully paid
Tax identification number 00484960588
Tel.: +39 0659821 - Fax: +39 0659822141
* * *
This press release is also available on the Eni web site eni.com.
Table of Contents
Eni Shareholders’ Meeting of May 12, 2016: proposal of Ministry of the economy and finance
Rome, April 21, 2016 - Today the Ministry of the economy and finance communicated that it will submit to the next Eni Shareholders’ Meeting of May 12, 2016, with reference to point 3 on the Agenda ("Appointment of a Director pursuant to Article 2386 of the Italian Civil Code"), the confirmation of Alessandro Profumo as Eni Director, until the date of the Shareholders’ Meeting that will be called to approve the financial statements for the 2016 financial year, expiration date of the current Board. Information on his profile is available on the Company’s website.
Company Contacts:
Press Office: Tel. +39.0252031875 - +39.0659822030
Freephone for shareholders (from Italy): 800940924
Freephone for shareholders (from abroad): +80011223456
Switchboard: +39-0659821
ufficio.stampa@eni.com
segreteriasocietaria.azionisti@eni.com
investor.relations@eni.com
Web site: www.eni.com
Table of Contents
Rome April 29, 2016 |
Registered Head Office |
Eni: first quarter 2016
results
Yesterday Eni’s Board of Directors approved group
results for the first quarter 2016 (unaudited).
Highlights and outlook
| • | Hydrocarbons production for the quarter grew 3.4% to 1.75 million boe/d. FY production is expected to be largely in line with 2015. | |
| • | Achieved 4 out of the 6 main start-ups scheduled for 2016, among which was the Goliat oilfield in the Barents Sea. Confirmed contribution from new start-ups and ramp-ups of approximately 300 kboe/d for 2016. | |
| • | FID taken for the development of the giant Zohr field with first gas expected in 2017; Coral field development plan approved by local Authorities. | |
| • | Continued exploration success: 120 mmboe of resources discovered in the quarter mainly near-field. Expectations are for an increase to the original guidance of 400 million boe of new resources for the FY. | |
| • | Capex optimization: confirmed 20% y-o-y reduction at constant exchange rates. |
Best proven reserves (P1) value of the industry as of January 1, 20161
| • | Present value of Eni’s P1 reserves at $6/bl, the highest in the oil majors benchmark group. | |
| • | Total present value of Eni’s P1 reserves: $41 billion, ranking 4th relating to dimension in the benchmark group, two positions above Eni’s reserve volume rank. |
Results
| • | Positive adjusted EBIT2 in all business segments, in spite of a depressed trading environment. | |
| • | Continuing operations3: |
| - | standalone adjusted operating profit: euro 0.47 billion (down 69%); | |||
| - | standalone adjusted net earnings: breakeven; | |||
| - | reported earnings: loss of euro 0.8 billion. |
| • | Group net earnings: loss of euro 0.79 billion. | |
| • | Cash flow4: euro 1.27 billion, down 56% from Q1 2015. | |
| • | Net borrowings: euro 12.21 billion at period-end; leverage at 0.23. |
Claudio Descalzi, Eni’s Chief Executive Officer,
commented:
"In the first quarter of 2016, despite the sharply weaker
commodity price environment, Eni achieved outstanding results in
executing its strategy of organic growth, capital expenditure
optimization and efficiency enhancement. Hydrocarbon production
grew, benefiting from the start-up of the Goliat oilfield and
three other projects. At the same time, we strengthened the
foundations for future growth as we took the final investment
decision for the development of the giant Zohr gas field, we
obtained approval for the development plan of Coral from the
Mozambican Authorities and we achieved further exploration
success. We are therefore progressing in promoting also in 2016
significant volumes of new proved reserves, whose per-barrel
present value already at the end of 2015 leads those of our
main competitors. In absolute terms, the present value of our
reserves portfolio ranks fourth among the International Oil
Majors. I am confident that, even in terms of reserves yet to
mature, our portfolio is one of the most valuable in the industry
thanks to its exposure to conventional assets and Eni’s
continued exploration success. Finally, the G&P and the
R&M segments also achieved positive results in the first
quarter, benefiting from continuous optimization initiatives and
cost efficiencies, despite a less favorable trading environment
year on year. Overall, the Group's financial and operating
results allow us to confirm our 2016 guidance of a 20% reduction
in capex, organically financed at $50/bl, and our targeted
leverage, which we monitor closely and is currently among the
lowest in the industry."
(1) Data disclosed in the "Standardized
measure of discounted future net cash flows" of the Annual
Report on Form 20-F. Peers group (Exxon, Chevron, Total, Statoil,
BP, Shell) data extracted from either the 10-K or the 20-F files.
(2) Operating profit.
(3) In this press release adjusted results from continuing
operations exclude as usual the items "profit/loss on
stock" and extraordinary gains and losses (special items),
while they reinstate the effects relating to the elimination of
gains and losses on intercompany transactions with the Chemical
sector which is in the disposal phase, represented as
discontinued operations under the IFRS 5. A corresponding
alternative performance measure has been presented for the cash
flow from operating activities. For further information, see
"Disclaimer" on page 6 and the reconciliations and
explanations on page 22.
(4) Net cash provided by operating activities of continuing
operations on a standalone basis.
- 1 -
Table of Contents
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | % Ch. | |||||
| SUMMARY GROUP RESULTS (a) | (euro million) |
| Continuing operations: | ||||||||||||
| 715 | Adjusted operating profit (loss) (b) | 1,418 | 73 | (94.9 | ) | |||||||
| (487 | ) | Adjusted net profit (loss) (b) | 454 | (479 | ) | .. | ||||||
| (7,373 | ) | Net profit (loss) | 617 | (803 | ) | .. | ||||||
| (2.05 | ) | - per share (euro) (c) | 0.17 | (0.22 | ) | .. | ||||||
| (4.49 | ) | - per ADR ($) (c) (d) | 0.38 | (0.48 | ) | .. | ||||||
| (9,017 | ) | Net profit (loss) | 832 | (792 | ) | .. | ||||||
| (2.50 | ) | - per share (euro) (c) | 0.23 | (0.22 | ) | .. | ||||||
| (5.48 | ) | - per ADR ($) (c) (d) | 0.52 | (0.48 | ) | .. | ||||||
| Results of continuing operations on standalone basis (b) | ||||||||||||
| 593 | Adjusted operating profit (loss) | 1,503 | 472 | (68.6 | ) | |||||||
| (308 | ) | Adjusted net profit (loss) | 701 | (77 | ) | .. | ||||||
| 3,955 | Net cash provided by operating activities | 2,890 | 1,266 | (56.2 | ) | |||||||
(a) Attributable to Eni's shareholders.
(b) Non-GAAP measures. For a detailed explanation and
reconciliation of standalone adjusted results and cash flow which
exclude as usual the items "profit/loss on stock" and
extraordinary gains and losses (special items), while they
reinstate the effects relating the elimination of gains and
losses on intercompany transactions with discontinued operations
see pages 22 and subsequent.
(c) Fully diluted. Dollar amounts are converted on the basis of
the average EUR/USD exchange rate quoted by the ECB for the
periods presented.
(d) One ADR (American Depositary Receipt) is equal to two Eni
ordinary shares.
Changes in accounting principles
Effective January 1, 2016, management adopted the
accounting of the successful-effort method (SEM) to recognize
exploration expenses in the preparation of the Group consolidated
financial statements. The successful-effort method is largely
adopted by oil&gas companies, to which Eni is increasingly
comparable given the recent re-focusing of the Group activities
on its core upstream business. Since it is a voluntary change in
accounting policy, the SEM adoption has been applied
retrospectively, as if it had always been applied. Accordingly,
the comparative amounts disclosed for each prior period presented
in this press release and the FY 2015 results have been restated.
Standalone adjusted results
Standalone adjusted operating profit from
continuing operations for Q1 2016 was euro 0.47 billion, down
by 69% from Q1 2015. This reflected sharply lower results of the
E&P segment (down by euro 1 billion) driven by the impact of
continuing weakness in commodity prices (the Brent benchmark was
down by 37%), partly offset by production growth, cost
efficiencies and lower amortization charges. The G&P and
R&M segments reported positive results, albeit slightly lower
than in Q1 2015 due to negative scenario effects and, in the case
of G&P, lower one time effects associated with gas contract
renegotiations and other non-recurring events, as well as mild
winter-weather conditions. These negatives were partly offset by
efficiency and optimization gains.
Overall, the low oil price environment had a fundamentally
negative effect on the operating performance amounting to euro
1.6 billion, which was partially offset by production growth and
efficiency gains of euro 0.6 billion.
In the quarter, Eni reported a standalone adjusted net result from continuing operations almost at breakeven (a negative euro 77 million) compared to an adjusted net profit of euro 0.7 billion reported in Q1 2015. The drivers of this reduction were a lowered operating profit and a lower than proportional reduction in the tax expense in E&P, which was negatively affected by the recognition of a major part of the positive pre-tax results in PSA contracts, which, although more resilient in a low-price environment, nonetheless bear higher-than-average rates of tax.
- 2 -
Table of Contents
Net borrowings and standalone cash flow
As of March 31, 2016, net borrowings5 were
euro 12.21 billion, euro 4.65 billion lower than December 31,
2015, due to the closing of the Saipem transaction. This
comprised the reimbursement of intercompany financing receivables
owed by Saipem to Eni (euro 5.8 billion), the proceeds from the
divestment of 12.503% of Eni’s interest in Saipem to FSI
(euro 0.46 billion), net of the amount cashed out to subscribe
pro-quota the Saipem share capital increase (euro 1.07 billion).
The standalone cash flow from operating activities from
continuing operations came in at euro 1.27 billion, down by
56% year-on-year. Proceeds from disposals were euro 0.81 billion
and comprised the available-for-sale shareholding in Snam due to
the exercise of the conversion right from bondholders (euro 0.33
billion), in addition to the sale of 12.503% of Eni’s
interest in Saipem. These inflows funded a share of the financial
requirements for the capital expenditure of the quarter (euro
2.42 billion) and the amount cashed out to subscribe the share
capital increase of Saipem.
As of March 31, 2016, the ratio of net borrowings to
shareholders’ equity including non-controlling interest
– leverage6 – decreased to 0.23, compared to
0.30 as of December 31, 2015.
This decrease was due to lower net borrowings partly offset by a
reduction in total equity. The equity reduction was impacted by
the results of the period and the de-recognition of the Saipem
non-controlling interest, as well as a depreciation of the US
dollar against the euro in the translation of the financial
statements of Eni’s subsidiaries that use the US dollar as
functional currency. The US dollar was down by 4.6% compared to
the closing of the previous reporting period at December 31,
2015.
The PV of Eni’s proven reserves is at
the top end of the industry
Following the filing of proven reserves (P1) reports
by competitors in their regulatory annual financial statements,
information is now available which allows for a further
appreciation of the value of Eni’s proven reserves, which
widen in relative terms during a downturn in the oil cycle,
likewise the current one. The data in the graph are drawn from
the regulatory filings with the US SEC and relate to the net
present value of proved reserves of Eni and of an oil & gas
benchmark group. Those data were determined in accordance with
FASB Oil and Gas disclosures requirements. In particular, looking
at the reported numbers:
- in 2014, the per-barrel PV of Eni’s proven reserves was the second best when a 101 $/bbl oil scenario applied, just behind a US major;
- in 2015, with an oil price of around 54 $/bbl, down from 101 $/bbl, Eni’s portfolio ranked highest, confirming the strength of our conventional and low cost assets, highly exposed to PSAs.
In absolute dollar terms, our portfolio ranks 4th among our peer group, coming ahead of companies with proved reserve volumes much bigger than ours. This result confirms the quality of Eni’s reserve portfolio and the effectiveness of actions taken to deal with falling oil prices. Looking forward, management expects to further strengthen Eni’s portfolio, by promoting new P1 thanks to the continued progress in developing the discoveries recently achieved.
(5) Details on net borrowings are furnished on
page 27.
(6) Non-GAAP financial measures disclosed throughout this press
release are accompanied by explanatory notes and tables to help
investors gain a full understanding of said measures in line with
guidance provided for by CESR Recommendation No. 2005-178b. See
pages 22 and 27.
- 3 -
Table of Contents
Business developments
In March 2016, production at the Goliat field started
up in the PL 229 license off the Norwegian Barents Sea. Goliat is
the first producing oilfield in the Barents Sea and is operated
through the largest and most sophisticated floating cylindrical
production and storage vessel (FPSO) in the world. Production is
expected to peak at 100 kbbl/d (65 kbbl/d net to Eni). The field
is estimated to contain reserves amounting to about 180 million
barrels of oil.
A new exploration license, the Cape Three Points Block 4, was obtained offshore Ghana. The new block covers an area of approximately 1,000 square kilometers in water depths ranging from 100 to 1,200 meters and is located near the OCTP block operated by Eni. In case of exploration success, the block will benefit from the OCTP project infrastructures, under development.
A Farm-Out Agreement (FOA) was signed with Chariot Oil & Gas to enter the Rabat Deep Offshore exploration permits I-VI, in the Northern Atlantic Margin of Morocco. Eni will retain operatorship and a working interest of 40%, as well as exploration rights over an area of approximately 11,000 square kilometers, with a water depth ranging from 150 to 3,500 meters. The new acreage has the potential for finding liquid hydrocarbons. The completion of this FOA is subject to the authorization of the country’s authorities and other conditions precedent.
As part of the APA Round 2015, Eni was awarded the following exploration licenses: PL 128D (Eni’s interest 11.5%) in the Norwegian Sea, PL 816 (Eni operator with a 70% interest) in the Norwegian section of the North Sea, PL 229D (Eni operator with a 65% interest) and PL 849 (Eni’s interest 30%) in the Barents Sea.
In February 2016, Egyptian authorities sanctioned the development plan of the Zohr discovery, where production start-up is expected by end of 2017. In March 2016, Eni completed the drilling of the Zohr 2X well and successfully performed the production test, which confirmed the mineral potential of discovery.
In February 2016, Mozambique authorities sanctioned the development of the first development phase of Coral, targeting production of 5 Tcf of gas.
As part of Eni’s near-field exploration strategy, positive results were achieved with the Nidoco North 1-X well in the Abu Madi West production concession, located in the Nile Delta. By mid-2016, with the addition of new reserves discovered, the production capacity in the concession will increase to over 60 kboe/d.
- 4 -
Table of Contents
Outlook
The global macroeconomic outlook for 2016 is clouded
by a number of risks and uncertainties, mainly relating to a
continued slowdown of growth in China, caution in the Eurozone
and in commodity-exporting countries. After hitting 13-years lows
of below $30 per barrel at the beginning of 2016, the price of
crude oil has recovered to the 40 dollar-mark thanks to signs of
a partial easing in the global glut. However, the fundamentals of
the oil market remain weak with the price of crude oil exposed to
possible negative pressure due to the uncertainties surrounding
the pace of energy demand growth in the short and medium term.
In order to cope with the anticipated negative impact of the
scenario on the E&P results from operations and cash flow,
management is planning to increase efforts to optimize capex and
reduce operating costs by exploiting the deflationary pressure
induced by the fall in crude oil prices. In the G&P sector,
management anticipates a challenging environment pressured by
weak demand growth and oversupplies. The Company confirms its
strategy to renegotiate long-term supply contracts in order to
align the supply terms with market conditions, as well as boost
profitability in its high-value businesses (LNG, gas retail and
trading). In the R&M sector management expects the refining
margin to be lower than in 2015. In this context, business
strategies will be focused on the optimization of refinery
processes and costs as well as on the enhancement of results in
marketing.
Management’s forecasts for the Group’s 2016
production and sale metrics are explained below:
- Hydrocarbons production: management expects production
to be largely flat y-o-y even assuming a production shutdown in
the Val d’Agri district until to year-end. This unfavorable
development, the decline of mature fields and a lower expected
contribution from production one-offs will be absorbed by the
planned start-up of new fields and continuing production ramp-up,
particularly in Norway, Egypt, Venezuela, Angola and Congo;
- Natural gas sales: against a backdrop of weak demand and
strong competition, management expects gas sales to be down y-o-y
in line with an expected reduction of the contractual minimum
take of supply contracts. Management plans to retain its market
share in the large customers and retail segments, also increasing
the value of the existing customer base by developing innovative
commercial initiatives, by integrating services to the supply of
the commodity and by optimizing operations and commercial
activities;
- Refinery intake on own account: refinery intakes are
expected to be flat y-o-y, excluding the effect of the disposal
of Eni’s refining capacity in CRC refinery in Czech Republic
finalized on April 30, 2015;
- Refined products sales in Italy and in the rest of Europe:
against a backdrop of weak demand growth and strong competition,
management expects to consolidate volume and market share in the
Italian retail market while also increasing the value of the
existing customer base. This will be achieved by leveraging our
offer differentiation, an innovation in products and services as
well as efficiency in logistic and commercial activities.
In 2016, management expects to carry out a number of
initiatives intended to reduce capital spending by 20% y-o-y on a
constant exchange rate basis by re-phasing and rescheduling
capital projects, being increasingly selective with exploration
plays and renegotiating contracts for the supply of capital goods
in order to cope with the slump in crude oil prices. This capex
optimization is not expected to negatively affect production
growth, which is confirmed at above 3% across the plan period.
The Group’s leverage is projected to remain within the 0.30
threshold thanks to the closing of the Saipem transaction,
optimization of the underlying performance and portfolio
management, which are expected to reduce the impact of the weak
commodity environment.
- 5 -
Table of Contents
Effective March 18, 2016, Legislative Decree
No. 25/2016, transposing the European Directive 2013/50/EU, has
removed for Italian-listed companies the reporting obligation to
disclose quarterly financial results. Therefore, this press
release has been prepared on a voluntary basis in line with
Eni’s policy to provide the market and investors with
regular information about the Company’s financial and
operating performances and business prospects considering the
disclosure policy followed by oil&gas peers.
Results and cash flow are presented for the first quarter of 2016
and for the first quarter and the fourth quarter of 2015.
Information on liquidity and capital resources relates to end of
the periods as of March 31, 2016, and December 31, 2015.
Accounts set forth herein have been prepared in accordance with
the evaluation and recognition criteria set by the International
Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board (IASB) and adopted by the European
Commission according to the procedure set forth in Article 6 of
the European Regulation (CE) No. 1606/2002 of the European
Parliament and European Council of July 19, 2002. These criteria
are unchanged from the 2015 Annual Report on Form 20-F filed with
the US SEC on April 12, 2016, which investors are urged to read.
Discontinued operations
As of December 31, 2015, the two operating segments Chemical
and E&C have been classified as discontinued operations based
on the guidelines of IFRS 5 (see Annual Report on Form 20-F -
preface to the explanatory notes to the financial statements).
The Saipem transaction was finalized on January 22, 2016, with
the closing of the sale of a 12.503% stake in the entity to the
Fondo Strategico Italiano (FSI) and the concurrent enter into
force of the shareholder agreement between the parties intended
to establish joint control over the former subsidiary. From the
transaction date, Saipem assets and liabilities, revenues and
expenses have been derecognized from Eni’s consolidated
accounts.
The residual stake in Saipem of 30.42% has been recognized as an
investment in an equity-accounted joint venture with an initial
carrying amount aligned to the share price at the closing date of
the transaction (euro 4.2 per share) recognizing a loss through
profit and loss of euro 441 million. This loss has been
recognized in the Group consolidated accounts for the first
quarter 2016 as part of gains and losses of the discontinued
operations.
As far as the Chemical segment concerns, negotiations are
underway with an industrial partner who has showed interest in
acquiring a controlling stake of Versalis, the 100%-owned Eni
subsidiary, which manages the Group chemical business, thus
supporting Eni in implementing an industrial plan designed to
upgrade the business.
Because Eni is exiting two major lines of business, the mentioned disposal groups have been represented and accounted for as discontinued operations. Based on this accounting, gains and losses pertaining to the discontinued operations include only those earned from transactions with third parties, while gains and losses on intercompany transactions have continued being eliminated because both disposal groups were fully consolidated entities and therefore intercompany transactions are eliminated upon consolidation till the closing of any sale agreement. The accounting of the discontinued operations entails that in presence of large intercompany transactions, the results of the continuing operations do not fully illustrate the underlying performance given the elimination of gains and losses on intercompany transactions with the discontinued operations. Regarding Versalis, the revenues earned by the Group operating companies, mainly in the R&M segment, for the supply of oil-based chemical feedstock are eliminated upon consolidation. Furthermore, starting from January 1, 2016, Versalis ceased recognizing depreciation charges.
Successful effort method (SEM)
Effective January 1, 2016, management modified on voluntary
basis, the criterion to recognize exploration expenses adopting
the accounting of the successful-effort method (SEM) . The
successful-effort method is largely adopted by oil&gas
companies, to which Eni is increasingly comparable given the
recent re-focalization of the Group activities on its core
upstream business.
Under the S-E-M, geological and geophysical exploration costs are
recognized as an expense as incurred. Costs directly associated
with an exploration well are initially capitalized as an unproved
tangible asset until the drilling of the well is complete and the
results have been evaluated. If potentially commercial quantities
of hydrocarbons are not found, the exploration well costs are
written off. If hydrocarbons are found and, subject to further
appraisal activity, are likely to be capable of commercial
development, the costs continue to be carried as an unproved
asset. If it is determined that development will not occur then
the costs are expensed. Costs directly associated with appraisal
activity undertaken to determine the size, characteristics and
commercial potential of a reservoir following the initial
discovery of hydrocarbons are initially capitalized as an
unproved tangible asset. When proved reserves of oil and natural
gas are determined and development is approved by management, the
relevant expenditure is transferred to proved property. In
accordance to IAS 8 "Accounting policies, Changes in
accounting estimates and Errors", the SEM application is a
voluntary changes in accounting policy explained by the alignment
with an accounting standard largely adopted by oil&gas
companies and as such it has been applied retrospectively.
The retrospective application of the SEM has required adjustment
of the opening balance of the retained earnings and other
comparative amounts as of January 1, 2014. Specifically, the
opening balance of the carrying amount of property, plant and
equipment was increased by euro 3,524 million, intangible assets
by euro 860 million and the retained earnings by euro 3,001
million. Other adjustments related to deferred tax liabilities
and other minor line items.
As far as 2015 financial year is concerned, the adoption of SEM
determined a reduction of operating profit of euro 815 million
compared to the amount publicly disclosed in our annual report
2015 (from a loss of euro 2,781 million to a loss of euro 3,596
million) driven by: (i) a reduction in depreciation and
amortization related to the previously fully-amortized
exploration drilling costs; (ii) the write-off of exploration
initiatives which management has determined to be no more
economical due to technical, legal, contractual issues, capital
allocation decisions or a revised outlook for commodity prices;
(iii) higher impairment losses taken at property plant and
equipment following the revaluation of the book values at
oil&gas CGUs.
2015 net loss pertaining to Eni’s shareholders was
re-determined in euro 7,969 million, compared to a loss of euro
7,680 million as previously filed. In elaborating Non-GAAP
measures (i.e. adjusted results) the write-off of certain
exploration projects expected to be no more profitable as
management reviewed the commodity price scenario, was classified
as special charges (a pre- tax amount of euro 169 million).
- 6 -
Table of Contents
The tables below set forth the restated amounts of the comparative periods 2015 which have been restated following the adoption of the SEM.
| REPORTED | RESTATED | |||
| (euro million) | I quarter 2015 | II quarter 2015 | III quarter 2015 | IV quarter 2015 | Full year 2015 | I quarter 2015 | II quarter 2015 | III quarter 2015 | IV quarter 2015 | Full year 2015 | ||||||||||
| Operating profit (loss) - continuing operations | 1,484 | 1,164 | (421 | ) | (5,008 | ) | (2,781 | ) | 1,599 | 1,154 | (259 | ) | (6,090 | ) | (3,596 | ) | ||||||||||||||
| Operating profit (loss) E&P | 1,298 | 1,471 | 701 | (3,614 | ) | (144 | ) | 1,413 | 1,461 | 863 | (4,696 | ) | (959 | ) | ||||||||||||||||
| Adjusted operating profit (loss) - continuing operations on a standalone basis | 1,378 | 1,436 | 432 | 858 | 4,104 | 1,503 | 1,488 | 594 | 593 | 4,178 | ||||||||||||||||||||
| Adjusted operating profit (loss) - E&P | 955 | 1,533 | 757 | 863 | 4,108 | 1,080 | 1,585 | 919 | 598 | 4,182 | ||||||||||||||||||||
| Net profit (loss) attributable to Eni's shareholders - continuing operations | 489 | 34 | (1,425 | ) | (6,778 | ) | (7,680 | ) | 617 | 50 | (1,263 | ) | (7,373 | ) | (7,969 | ) | ||||||||||||||
| Adjusted net profit (loss) attributable to Eni's shareholders - continuing operations on a standalone basis | 575 | 390 | (429 | ) | (202 | ) | 334 | 701 | 447 | (267 | ) | (308 | ) | 573 | ||||||||||||||||
| Total assets | 134,792 | 138,810 | ||||||||||||||||||||||||||||
| Eni's shareholders equity | 51,753 | 55,199 | ||||||||||||||||||||||||||||
| Cash flow from operations from continuing operations on a standalone basis | 2,287 | 3,511 | 1,371 | 4,012 | 11,181 | 2,222 | 3,440 | 1,305 | 3,960 | 10,927 | ||||||||||||||||||||
| Net cash flow | 656 | (1,804 | ) | (34 | ) | (232 | ) | (1,414 | ) | 656 | (1,804 | ) | (34 | ) | (232 | ) | (1,414 | ) | ||||||||||||
Non-GAAP financial measures and other performance indicators disclosed throughout this press release are accompanied by explanatory notes and tables to help investors to gain a full understanding of said measures in line with guidance provided by recommendation CESR/05-178b.
Eni’s Chief Financial and Risk Management Officer, Massimo Mondazzi, in his position as manager responsible for the preparation of the Company’s financial reports, certifies that data and information disclosed in this press release correspond to the Company’s evidence and accounting books and records, pursuant to rule 154-bis paragraph 2 of Legislative Decree No. 58/1998.
Disclaimer
This press release, in particular the statements under the
section "Outlook", contains certain forward-looking
statements particularly those regarding capital expenditure,
development and management of oil and gas resources, dividends,
allocation of future cash flow from operations, gearing, future
operating performance, targets of production and sales growth,
new markets and the progress and timing of projects. By their
nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that will or may occur in the future. Actual
results may differ from those expressed in such statements,
depending on a variety of factors, including the timing of
bringing new fields on stream; management’s ability in
carrying out industrial plans and in succeeding in commercial
transactions; future levels of industry product supply; demand
and pricing; operational issues; general economic conditions;
political stability and economic growth in relevant areas of the
world; changes in laws and governmental regulations; development
and use of new technology; changes in public expectations and
other changes in business conditions; the actions of competitors
and other factors discussed elsewhere in this document. Due to
the seasonality in demand for natural gas and certain refined
products and the changes in a number of external factors
affecting Eni’s operations, such as prices and margins of
hydrocarbons and refined products, Eni’s results from
operations and changes in net borrowings for the first quarter of
the year cannot be extrapolated on an annual basis.
* * *
Company Contacts
Press Office: +39.0252031875 - +39.0659822030
Freephone for shareholders (from Italy): 800940924
Freephone for shareholders (from abroad): +80011223456
Switchboard: +39-0659821
ufficio.stampa@eni.com
segreteriasocietaria.azionisti@eni.com
investor.relations@eni.com
Website: www.eni.com
* * *
Eni
Società per Azioni Rome, Piazzale Enrico Mattei, 1
Share capital: euro 4,005,358,876 fully paid
Tax identification number 00484960588
Tel.: +39 0659821 - Fax: +39 0659822141
This press release for the first quarter 2016 (unaudited) is also available on Eni’s website eni.com.
- 7 -
Table of Contents
| Quarterly consolidated
report Summary results7 for the first quarter 2016 |
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| 13,889 | Net sales from operations - continuing operations | 19,988 | 12,357 | ||||||
| (6,090 | ) | Operating profit (loss) - continuing operations | 1,599 | (321 | ) | ||||
| 527 | Exclusion of inventory holding (gains) losses | (87 | ) | 247 | |||||
| 6,278 | Exclusion of special items (a) | (94 | ) | 147 | |||||
| 715 | Adjusted operating profit (loss) - continuing operations | 1,418 | 73 | ||||||
| Breakdown by segment: | |||||||||
| 598 | Exploration & Production | 1,080 | 95 | ||||||
| 18 | Gas & Power | 294 | 285 | ||||||
| 93 | Refining & Marketing | 92 | 66 | ||||||
| (101 | ) | Corporate and other activities | (89 | ) | (90 | ) | |||
| 107 | Impact of unrealized intragroup profit elimination and other consolidation adjustments (b) | 41 | (283 | ) | |||||
| 715 | Adjusted operating profit (loss) - continuing operations | 1,418 | 73 | ||||||
| (122 | ) | Reinstatement of intercompany transactions vs. discontinued operations | 85 | 399 | |||||
| 593 | Adjusted operating profit (loss) - continuing operations on standalone basis | 1,503 | 472 | ||||||
| (7,373 | ) | Net profit (loss) attributable to Eni's shareholders - continuing operations | 617 | (803 | ) | ||||
| 365 | Exclusion of inventory holding (gains) losses | (59 | ) | 168 | |||||
| 6,521 | Exclusion of special items (a) | (104 | ) | 156 | |||||
| (487 | ) | Adjusted net profit (loss) attributable to Eni's shareholders - continuing operations | 454 | (479 | ) | ||||
| 179 | Reinstatement of intercompany transactions vs. discontinued operations | 247 | 402 | ||||||
| (308 | ) | Adjusted net profit (loss) attributable to Eni's shareholders on standalone basis | 701 | (77 | ) | ||||
| (9,017 | ) | Net profit (loss) attributable to Eni's shareholders | 832 | (792 | ) | ||||
| (7,373 | ) | Net profit (loss) attributable to Eni's shareholders - continuing operations | 617 | (803 | ) | ||||
| (1,644 | ) | Net profit (loss) attributable to Eni's shareholders - discontinued operations | 215 | 11 | |||||
| 3,960 | Net cash provided by operating activities - continuing operations | 2,222 | 862 | ||||||
| 503 | Net cash provided by operating activities - discontinued operations | 17 | 508 | ||||||
| 4,463 | Net cash provided by operating activities | 2,239 | 1,370 | ||||||
| 3,955 | Net cash provided by operating activities on standalone basis | 2,890 | 1,266 | ||||||
| 2,629 | Capital expenditure - continuing operations | 2,654 | 2,419 | ||||||
(a) For further information see
"Breakdown of special items".
(b) Unrealized intragroup profit elimination mainly pertained to
intra-group sales of commodities and services recorded in the
assets of the purchasing business segment as of the end of the
period.
(7) As provided by IFRS, in case of "discontinued operations" gains and losses pertaining to activities in disposal phase and consequently to "continuing operations" are those deriving from transaction with third parties. Because of this, the above mentioned representation of Versalis, Saipem (insofar as 2015 comparative periods are concerned) and continuing operations as standalone entities do not fully illustrate their results, mainly when relevant intercompany transactions occur in the reporting period disclosed in this press release as well as in future reporting periods. Further information on Versalis, Saipem (insofar as 2015 comparative periods are concerned) and continuing operations results with detailed intercompany transaction see segment information at page 22 and subsequent.
- 8 -
Table of Contents
Trading environment indicators
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | % Ch. | |||||
| 43.69 | Average price of Brent dated crude oil (a) | 53.97 | 33.89 | (37.2 | ) | |||||||
| 1.095 | Average EUR/USD exchange rate (b) | 1.126 | 1.102 | (2.1 | ) | |||||||
| 39.90 | Average price in euro of Brent dated crude oil | 47.93 | 30.75 | (35.8 | ) | |||||||
| 6.56 | Standard Eni Refining Margin (SERM) (c) | 7.57 | 4.18 | (44.8 | ) | |||||||
| 5.56 | Price of NBP gas (d) | 7.25 | 4.35 | (40.0 | ) | |||||||
| (0.09 | ) | Euribor - three-month euro rate (%) | 0.05 | (0.19 | ) | .. | ||||||
| 0.41 | Libor - three-month dollar rate (%) | 0.26 | 0.63 | .. | ||||||||
(a) In USD dollars per barrel. Source:
Platt’s Oilgram.
(b) Source: ECB.
(c) In USD per barrel. Source: Eni calculations. It gauges the
profitability of Eni’s refineries against the typical raw
material slate and yields.
(d) In USD per million BTU (British Thermal Unit). Source:
Platt’s Oilgram.
Financial review
Adjusted results on a standalone basis
In the first quarter 2016, adjusted operating
profit of continuing operations was euro 472 million, down by
euro 1,031 million, or 68.6% compared to the first quarter of
2015. The fall was attributable to lower commodity prices (down
by euro 1.6 billion), partially offset by efficiency gains and
production growth amounting to euro 0.6 billion. Adjusted net
loss pertaining to Eni’s shareholders from continuing
operations was euro 77 million, down by euro 778 million
compared to the first quarter of 2015, due to a declining
operating performance and a lower than proportional reduction in
the tax expense of the Exploration & Production segment.
The positive adjustments of euro 726 million related to: (i) a
loss on stock of euro 168 million; (ii) special charges of euro
156 million; (iii) the reinstatement of gains and losses on
intercompany transactions with the discontinued operations, which
are eliminated upon consolidation in GAAP earnings, in order to
obtain a Non-GAAP measure which is indicative of the underlying
performance of the continuing operations (euro 402 million).
Special charges of the operating profit from continuing operations amounted to euro 147 million, and mainly related to: (i) the fair-value evaluation of certain commodity derivatives lacking the formal criteria to be accounted as hedges under IFRS (charge of euro 133 million); (ii) environmental provisions (euro 26 million); (iii) exchange rates derivatives (a gain of euro 44 million).
Reported results
In the first quarter of 2016, Eni reported a net
loss from continuing operations of euro 803 million compared
to the first quarter of 2015 when Eni reported a net profit of
euro 617 million. A prolonged slide in crude oil prices has
negatively affected the Group’s performance, eroding results
from operations and cash flow.
Operating earnings were euro 1,920 million lower than the first
quarter of 2015 driven by lower E&P revenues reflecting
reduced oil and gas realizations, in turn negatively impacted by
sharply lower Brent prices (down by 37%). In addition, the
reduced operating profit reflected the elimination due to
consolidation of revenues earned by the continuing operations
from the Chemical disposal group, whereas in the first quarter
2015 the elimination of intercompany revenues towards the
Chemical segment was offset by the elimination of intercompany
expenses incurred towards Saipem for maintenance and construction
works commissioned by the continuing operations. The negative
impact of lower commodity prices on results from operations and
cash generation were partly offset by efficiency and
optimizations gains across all businesses and production growth.
- 9 -
Table of Contents
Net loss for the quarter was impacted by the recognition of a net tax expense amounting to euro 359 million, in spite of reporting negative pre-tax earnings. This circumstance reflected the impact of a deteriorating price scenario in the upstream segment, which resulted in the segment’s taxable profit earned in PSA contracts, which, although more resilient in a low-price environment, nonetheless bear higher-than-average rates of tax and a reduced capacity to recognize deferred tax assets on losses incurred in the quarter.
Group net loss pertaining to Eni’s shareholders amounted to euro 792 million. This result includes a net profit pertaining to Eni’s shareholders from discontinued operations (euro 11 million). This was due to the IFRS 5 accounting for the Chemical disposal group whose results were positively influenced by the elimination upon consolidation of intercompany expenses incurred towards the continuing operations, as well as the interruption of the amortization of PP&E, offset by euro 441 million loss which was recognized to align the book value of the residual Eni’s interest in Saipem to its fair value at the transaction date (January 22, 2016).
- 10 -
Table of Contents
Summarized Group Balance Sheet8
| (euro million) | ||||||
| Dec. 31, 2015 | Mar. 31, 2016 | Change | |||
| Fixed assets | |||||||||
| Property, plant and equipment | 67,682 | 66,094 | (1,588 | ) | |||||
| Inventories - Compulsory stock | 909 | 871 | (38 | ) | |||||
| Intangible assets | 2,979 | 2,905 | (74 | ) | |||||
| Equity-accounted investments and other investments | 3,326 | 4,595 | 1,269 | ||||||
| Receivables and securities held for operating purposes | 2,064 | 2,022 | (42 | ) | |||||
| Net payables related to capital expenditure | (1,276 | ) | (1,389 | ) | (113 | ) | |||
| 75,684 | 75,098 | (586 | ) | ||||||
| Net working capital | |||||||||
| Inventories | 3,910 | 3,392 | (518 | ) | |||||
| Trade receivables | 12,022 | 12,228 | 206 | ||||||
| Trade payables | (9,345 | ) | (9,487 | ) | (142 | ) | |||
| Tax payables and provisions for net deferred tax liabilities | (4,240 | ) | (4,452 | ) | (212 | ) | |||
| Provisions | (15,247 | ) | (13,846 | ) | 1,401 | ||||
| Other current assets and liabilities | 1,804 | 1,510 | (294 | ) | |||||
| (11,096 | ) | (10,655 | ) | 441 | |||||
| Provisions for employee post-retirement benefits | (1,056 | ) | (1,055 | ) | 1 | ||||
| Discontinued operations and assets held for sale including related liabilities | 10,446 | 1,411 | (9,035 | ) | |||||
| CAPITAL EMPLOYED, NET | 73,978 | 64,799 | (9,179 | ) | |||||
| Eni shareholders’ equity | 55,199 | 52,542 | (2,657 | ) | |||||
| Non-controlling interest | 1,916 | 47 | (1,869 | ) | |||||
| Shareholders’ equity | 57,115 | 52,589 | (4,526 | ) | |||||
| Net borrowings | 16,863 | 12,210 | (4,653 | ) | |||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 73,978 | 64,799 | (9,179 | ) | |||||
| Leverage | 0.30 | 0.23 | (0.07 | ) | |||||
The Summarized Group Balance Sheet was affected by the movement in the EUR/USD exchange rate which determined a decrease in net capital employed, net borrowings and total equity by euro 2,110 million, euro 246 million and euro 1,864 million, respectively. This was due to translation into euros of the financial statements of US-denominated subsidiaries reflecting a 4.6% appreciation of the euro against the US dollar (1 EUR = 1.1385 USD at March 31, 2016 compared to 1.089 at December 31, 2015).
Fixed assets (euro 75,098 million) decreased by euro 586 million from December 31, 2015 mainly due to the appreciation of the euro. Other changes related to capital expenditures for the quarter (euro 2,419 million) offset by DD&A and write-offs (euro 1,862 million). Finally the line item "Equity-accounted investments and other investments" (euro 1,269 million) increased due to the recognition as an equity-accounted investment of the residual 30.42% stake in Saipem and the pro-quota amount cashed out to subscribe Saipem share capital increase for an overall amount of euro 1,614 million, as well as the entity result for the period attributable to Eni.
(8) The summarized Group balance sheet aggregates the amount of assets and liabilities derived from the statutory balance sheet in accordance with functional criteria, which consider the enterprise conventionally divided into the three fundamental areas focusing on resource investments, operations and financing. Management believes that this summarized Group balance sheet is useful information in assisting investors to assess Eni’s capital structure and to analyze its sources of funds and investments in fixed assets and working capital. Management uses the summarized Group balance sheet to calculate key ratios such as the proportion of net borrowings to shareholders’ equity (leverage) intended to evaluate whether Eni’s financing structure is sound and well-balanced.
- 11 -
Table of Contents
Net working capital was in negative territory at minus euro 10,655 million and increased by euro 441 million due to a reduction in provisions, mainly in G&P due to price revision of long-term contracts, partially offset by higher trade payables and lower advances, as well as higher commercial exposure to joint-venture partners in E&P. These increases were partly offset by reduced trade receivables and inventories due to scenario effects and the seasonality affecting gas sales.
Discontinued operations, asset held for sale including related liabilities (euro 1,411 million) refer mainly to the chemical business managed by Versalis (Eni’s interest 100%). As of the reporting date, negotiations were underway to define an agreement with an industrial partner who, by acquiring a controlling stake of Versalis (Eni 100%), would support Eni in implementing an industrial plan designed to upgrade this business. When compared to December 31, 2015 the above mentioned item decreased by euro 9,035 million due to the closing of the Saipem deal.
Shareholders’ equity including non-controlling interest was euro 52,589 million, down by euro 4,526 million from December 31, 2015. This was due to net loss in comprehensive income (euro 2,645 million) given by net loss of euro 789 million and unfavorable foreign currency translation differences (euro 1,864 million). Also affecting the total equity was the de-recognition of Saipem non-controlling interest (euro 1,872 million).
- 12 -
Table of Contents
Summarized Group Cash Flow Statement9
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | Change | |||||
| (7,074 | ) | Net profit (loss) - continuing operations | 474 | (800 | ) | (1,274 | ) | |||||
| Adjustments to reconcile net profit (loss) to net cash provided by operating activities: | ||||||||||||
| 8,758 | - depreciation, depletion and amortization and other non monetary items | 2,032 | 1,884 | (148 | ) | |||||||
| (135 | ) | - net gains on disposal of assets | (314 | ) | (18 | ) | 296 | |||||
| 134 | - dividends, interest, taxes and other changes | 841 | 432 | (409 | ) | |||||||
| 3,067 | Changes in working capital related to operations | 609 | 151 | (458 | ) | |||||||
| (790 | ) | Dividends received, taxes paid, interest (paid) received | (1,420 | ) | (787 | ) | 633 | |||||
| 3,960 | Net cash provided by operating activities - continuing operations | 2,222 | 862 | (1,360 | ) | |||||||
| 503 | Net cash provided by operating activities - discontinued operations | 17 | 508 | 491 | ||||||||
| 4,463 | Net cash provided by operating activities | 2,239 | 1,370 | (869 | ) | |||||||
| (2,629 | ) | Capital expenditure - continuing operations | (2,654 | ) | (2,419 | ) | 235 | |||||
| (222 | ) | Capital expenditure - discontinued operations | (180 | ) | (36 | ) | 144 | |||||
| (2,851 | ) | Capital expenditure | (2,834 | ) | (2,455 | ) | 379 | |||||
| (57 | ) | Investments and purchase of consolidated subsidiaries and businesses | (61 | ) | (1,124 | ) | (1,063 | ) | ||||
| 1,353 | Disposals | 547 | 805 | 258 | ||||||||
| Cash and cash equivalent related to discontinued operations divested | (889 | ) | (889 | ) | ||||||||
| (660 | ) | Other cash flow related to capital expenditure, investments and disposals | (596 | ) | (39 | ) | 557 | |||||
| 2,248 | Free cash flow | (705 | ) | (2,332 | ) | (1,627 | ) | |||||
| (377 | ) | Borrowings (repayment) of debt related to financing activities | (172 | ) | 5,987 | 6,159 | ||||||
| (1,206 | ) | Changes in short and long-term financial debt | 1,430 | (3,702 | ) | (5,132 | ) | |||||
| (23 | ) | Dividends paid and changes in non-controlling interest and reserves | ||||||||||
| (874 | ) | Effect of changes in consolidation, exchange differences and cash and cash equivalent related to discontinued operations divested | 103 | 870 | 767 | |||||||
| (232 | ) | NET CASH FLOW | 656 | 823 | 167 | |||||||
| 3,955 | Net cash provided by operating activities on standalone basis | 2,890 | 1,266 | (1,624 | ) | |||||||
Change in net borrowings
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | Change | |||||
| 2,248 | Free cash flow | (705 | ) | (2,332 | ) | (1,627 | ) | |||||
| Net borrowings of acquired companies | ||||||||||||
| Net borrowings of divested companies | 18 | 6,707 | 6,689 | |||||||||
| (674 | ) | Exchange differences on net borrowings and other changes | (768 | ) | 278 | 1,046 | ||||||
| (23 | ) | Dividends paid and changes in non-controlling interest and reserves | ||||||||||
| 1,551 | CHANGE IN NET BORROWINGS | (1,455 | ) | 4,653 | 6,108 | |||||||
In the first quarter 2016, net cash provided by operating activities from continuing operations amounted to euro 862 million and was negatively influenced by the eliminations of intercompany flows with discontinued operations. When reinstating these effects, the standalone net cash provided by operating activities from continuing operations was euro 1,266 million. Proceeds from disposals were euro 805 million and mainly related to the 12.503% interest in Saipem and an interest in Snam due to exercise of the
(9) Eni’s summarized Group cash flow statement derives from the statutory statement of cash flows. It enables investors to understand the link existing between changes in cash and cash equivalents (deriving from the statutory cash flows statement) and in net borrowings (deriving from the summarized cash flow statement) that occurred from the beginning of the period to the end of period. The measure enabling such a link is represented by the free cash flow which is the cash in excess of capital expenditure needs. Starting from free cash flow it is possible to determine either: (i) changes in cash and cash equivalents for the period by adding/deducting cash flows relating to financing debts/receivables (issuance/repayment of debt and receivables related to financing activities), shareholders’ equity (dividends paid, net repurchase of own shares, capital issuance) and the effect of changes in consolidation and of exchange rate differences; (ii) changes in net borrowings for the period by adding/deducting cash flows relating to shareholders’ equity and the effect of changes in consolidation and of exchange rate differences. The free cash flow is a non-GAAP measure of financial performance.
- 13 -
Table of Contents
conversion right by bondholders (euro 0.33 billion). These inflows funded part of capital expenditure (euro 2,455 million) and Saipem share capital increase.
When considering the cash flow of discontinued operations and the reimbursement of intercompany financing receivables amounting to euro 6,707 million, as part of the closing of the Saipem deal, the Group’s net debt decreased by euro 4,653 million, net of negative exchange rate differences.
Other information
Val d’Agri
As disclosed in the Annual Report on Form 20-F (see page
F-86), the Italian Public Prosecutor’s Office of Potenza
started a criminal investigation in order to ascertain existence
of environmental crimes and concurrently put under seizure
certain plants functional to the production activity of the Val
d’Agri complex which, as a consequence, has been shut down.
The Val d’Agri center is currently producing 60 kboe/d net
to Eni (50 kboe/d is the expected full-year impact). A second
instance court rejected Eni’s appeal against the seizure
measure as it reaffirmed the decision of the Public Prosecutor.
Eni will immediately file an appeal against the seizure measure
before a third instance court. In addition, the Company will
request execution of an evidentiary examination in order to make
a definitive assessment of the correctness of the operational
running of the plant.
Article No. 36 of Italian regulatory exchanges (Consob
Resolution No. 16191/2007 and subsequent amendments). Continuing
listing standards about issuers that control subsidiaries
incorporated or regulated in accordance with laws of extra-EU
Countries.
Certain provisions have been enacted to regulate
continuing Italian listing standards of issuers controlling
subsidiaries that are incorporated or regulated in accordance
with laws of extra-EU Countries, also having a material impact on
the consolidated financial statements of the parent company.
Regarding the aforementioned provisions, as of March 31, 2016,
Eni’s subsidiaries – Eni Congo SA, Eni Norge AS, Eni
Petroleum Co Inc, Nigerian Agip Oil Co Ltd, Nigerian Agip
Exploration Ltd, Burren Energy (Congo) Ltd, Eni Finance USA Inc,
Eni Trading & Shipping Inc, Eni Canada Holding Ltd, Eni
Turkmenistan Ltd, Eni Ghana Exploration and Production Ltd and
Eni Suisse SA – fall within the scope of the new continuing
listing standards. Eni has already adopted adequate procedures to
ensure full compliance with the new regulations.
Financial and operating information by segment for the first quarter of 2016 is provided in the following pages.
- 14 -
Table of Contents
Exploration & Production
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | % Ch. | |||||
| RESULTS | (euro million) |
| 4,977 | Net sales from operations | 5,212 | 3,356 | (35.6 | ) | |||||||||
| (4,696 | ) | Operating profit (loss) | 1,413 | 94 | (93.3 | ) | ||||||||
| 5,294 | Exclusion of special items: | (333 | ) | 1 | ||||||||||
| 5,100 | - asset impairments | |||||||||||||
| 169 | - impairment of exploration projects | 7 | ||||||||||||
| (37 | ) | - net gains on disposal of assets | (325 | ) | ||||||||||
| (1 | ) | - provision for redundancy incentives | 1 | 1 | ||||||||||
| (14 | ) | - commodity derivatives | 11 | 4 | ||||||||||
| (51 | ) | - exchange rate differences and derivatives | (17 | ) | ||||||||||
| 128 | - other | (3 | ) | (11 | ) | |||||||||
| 598 | Adjusted operating profit (loss) | 1,080 | 95 | (91.2 | ) | |||||||||
| (72 | ) | Net financial income (expense) (a) | (64 | ) | (58 | ) | ||||||||
| 100 | Net income (expense) from investments (a) | 23 | 25 | |||||||||||
| (599 | ) | Income taxes (a) | (795 | ) | (307 | ) | ||||||||
| 95.7 | Tax rate (%) | 76.5 | .. | |||||||||||
| 27 | Adjusted net profit (loss) | 244 | (245 | ) | .. | |||||||||
| Results also include: | ||||||||||||||
| 488 | exploration expense: | 122 | 87 | (28.7 | ) | |||||||||
| 52 | - prospecting, geological and geophysical expenses | 65 | 55 | (15.4 | ) | |||||||||
| 436 | - write-off of exploration wells | 57 | 32 | (43.9 | ) | |||||||||
| 2,254 | Capital expenditure | 2,601 | 2,297 | (11.7 | ) | |||||||||
| Production (b) (c) | ||||||||||||||
| 998 | Liquids (d) | (kbbl/d) | 860 | 890 | 3.5 | |||||||||
| 4,868 | Natural gas | (mmcf/d) | 4,596 | 4,718 | 3.1 | |||||||||
| 1,884 | Total hydrocarbons | (kboe/d) | 1,697 | 1,754 | 3.4 | |||||||||
| Average realizations | ||||||||||||||
| 38.68 | Liquids (d) | ($/bbl) | 48.26 | 29.69 | (38.5 | ) | ||||||||
| 4.06 | Natural gas | ($/kcf) | 5.11 | 3.31 | (35.3 | ) | ||||||||
| 31.68 | Total hydrocarbons | ($/boe) | 38.28 | 24.09 | (37.1 | ) | ||||||||
| Average oil market prices | ||||||||||||||
| 43.69 | Brent dated | ($/bbl) | 53.97 | 33.89 | (37.2 | ) | ||||||||
| 39.90 | Brent dated | (euro/bbl) | 47.93 | 30.75 | (35.8 | ) | ||||||||
| 42.10 | West Texas Intermediate | ($/bbl) | 48.55 | 33.27 | (31.5 | ) | ||||||||
| 2.11 | Gas Henry Hub | ($/mmbtu) | 2.87 | 1.96 | (31.7 | ) | ||||||||
(a) Excluding special items.
(b) Supplementary operating data is provided on page 35.
(c) Includes Eni’s share of production of equity-accounted
entities.
(d) Includes condensates.
Results
In the first quarter of 2016, the Exploration & Production segment reported an adjusted operating profit of euro 95 million, down by euro 985 million or 91.2% compared to the first quarter of 2015. This result was driven by lower oil and gas realizations in dollar terms (down by 38.5% and 35.3%, respectively), reflecting trends in the marker Brent (down by 37.2%) and weak gas prices in Europe and in the United States. These effects were only partially offset by higher production, reductions in operating costs and lower DD&A.
- 15 -
Table of Contents
In the first quarter of 2016, adjusted net loss amounted to euro 245 million, euro 489 million worse compared to euro 244 million reported in the same period of the previous year. This was due to lower operating performance and a lower than proportional reduction in the tax expense, driven by a deteriorating price scenario, which resulted in the concentration of taxable profit in PSA contracts, which, although more resilient in a low-price environment, bear higher-than average rates of tax and a reduced capacity to recognize deferred tax assets on losses incurred in the quarter.
In the first quarter of 2016, taxes paid represented approximately 35% of the cash flow from operating activities of the E&P segment before changes in working capital and income taxes paid, lower than in 2015.
Operating review
In the first quarter of 2016, Eni’s hydrocarbon
production10 was 1.754 million boe/d, 3.4% higher
compared to the first quarter of 2015. Excluding the price
effects reported in Production Sharing Agreements and other
effects, production resulted up by 1.3% due to new fields’
start-ups and production ramp-up at fields started in 2015 mainly
in Angola, Congo, Egypt, Venezuela, the United States and Norway,
as well as increased production in Iraq. These positive effects
were partly offset by a decline in mature fields.
The share of oil and natural gas produced outside Italy was 91%
(90% in the first quarter of 2015).
Liquids production (890 kbbl/d) increased by 30 kbbl/d, or 3.5% from the first quarter of 2015.
Natural gas production in the quarter was 4,718 mmcf/d, up by 122 mmcf/d, or 3.1% compared to the same period of the previous year.
.
(10) From January 1, 2016, as part of a regular reviewing procedure, Eni has updated the conversion rate of gas to 5,458 cubic feet of gas equals 1 barrel of oil (it was 5,492 cubic feet of gas per barrel in previous reporting periods). This update reflected changes in Eni’s gas properties that took place in the last three years and was assessed by collecting data on the heating power of gas in all Eni’s gas fields currently on stream. The effect of this update on production expressed in boe for the first quarter of 2016 was 5 kboe/d. Other per-boe indicators were only marginally affected by the update (e.g. realization prices, costs per boe) and also negligible was the impact on depletion charges. Other oil companies may use different conversion rates.
- 16 -
Table of Contents
Gas & Power
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | % Ch. | |||||
| RESULTS | (euro million) |
| 10,609 | Net sales from operations | 16,373 | 10,030 | (38.7 | ) | |||||||||
| (894 | ) | Operating profit (loss) | 186 | 83 | (55.4 | ) | ||||||||
| 96 | Exclusion of inventory holding (gains) losses | 31 | 128 | |||||||||||
| 816 | Exclusion of special items: | 77 | 74 | |||||||||||
| 137 | - asset impairments | |||||||||||||
| 132 | - risk provisions: | |||||||||||||
| 132 | - of which provision on retail credits on invoices to be issued | |||||||||||||
| (1 | ) | - provision for redundancy incentives | ||||||||||||
| 144 | - commodity derivatives | 8 | 103 | |||||||||||
| 7 | - exchange rate differences and derivatives | 69 | (39 | ) | ||||||||||
| 397 | - other: | 10 | ||||||||||||
| 373 | - of which revision of credits evaluation on invoices to be issued | |||||||||||||
| 18 | Adjusted operating profit (loss) | 294 | 285 | (3.1 | ) | |||||||||
| 5 | Net finance income (expense) (a) | 2 | 2 | |||||||||||
| 5 | Net income (expense) from investments (a) | 3 | 5 | |||||||||||
| (64 | ) | Income taxes (a) | (81 | ) | (128 | ) | ||||||||
| .. | Tax rate (%) | 27.1 | 43.8 | |||||||||||
| (36 | ) | Adjusted net profit (loss) | 218 | 164 | (24.8 | ) | ||||||||
| 74 | Capital expenditure | 18 | 22 | 22.2 | ||||||||||
| Natural gas sales (b) | (bcm) | |||||||||||||
| 9.51 | Italy | 10.53 | 10.79 | 2.5 | ||||||||||
| 12.87 | International sales | 15.09 | 13.31 | (11.8 | ) | |||||||||
| 10.36 | - Rest of Europe | 12.97 | 11.30 | (12.9 | ) | |||||||||
| 1.66 | - Extra European markets | 1.34 | 1.20 | (10.4 | ) | |||||||||
| 0.85 | - E&P sales in Europe and in the Gulf of Mexico | 0.78 | 0.81 | 3.8 | ||||||||||
| 22.38 | Worldwide gas sales | 25.62 | 24.10 | (5.9 | ) | |||||||||
| of which: | ||||||||||||||
| 20.77 | - sales of consolidated subsidiaries | 24.23 | 22.54 | (7.0 | ) | |||||||||
| 0.76 | - Eni's share of sales of natural gas of affiliates | 0.61 | 0.75 | 23.0 | ||||||||||
| 0.85 | - E&P sales in Europe and in the Gulf of Mexico | 0.78 | 0.81 | 3.8 | ||||||||||
| 9.06 | Electricity sales | (TWh) | 8.47 | 9.45 | 11.6 | |||||||||
(a) Excluding special items.
(b) Supplementary operating data is provided on page 36.
Results
In the first quarter of 2016, the Gas & Power segment reported an adjusted operating profit of euro 285 million, down by euro 9 million, or 3.1% from the first quarter of 2015. This reflected lower one-off benefits associated to contract renegotiations and other non-recurring events, lower margins on LNG sales due to an unfavorable trading environment, partially offset by optimization initiatives and reduced logistical costs. The Retail segment reported lower results due to unusual winter weather conditions.
Adjusted operating profit for the quarter included a euro 74 million positive adjustment, which comprised special charges of euro 103 million relating to fair-valued commodity derivatives lacking the formal requisites to be accounted as hedges under IFRS, partially offset by derivatives that are reclassified to adjusted operating profit and relate to exchange rate exposure in commodity pricing formulas and exposure on trade payables (gains of euro 39 million).
- 17 -
Table of Contents
In the quarter, adjusted net profit amounted to euro 164 million, euro 54 million less compared to the same period of the previous year (down by 25%). This reflected lower operating performance and increased adjusted tax rate, up by approximately 17 percentage points.
Operating review
In the first quarter of 2016, Eni’s natural
gas sales were 24.10 bcm, 5.9% lower compared to the first
quarter of 2015. Sales in Italy increased by 2.5% to 10.79 bcm
driven by higher spot sales and higher volumes traded to small
and medium-sized enterprises and to services industry. These
positives were partially offset by lower sales reported in the
retail segment due to mild winter weather and lower sales to
large clients. Sales in the European markets amounted to 10.17
bcm, down by 14.1% compared to the same period of the previous
year, mainly in Benelux and in the United Kingdom. This reflected
decrease in volumes traded on the spot market as well as lower
sales in Turkey reflecting lower sales to Botas, only partially
offset by higher spot volumes traded in the Iberian Peninsula. In
the quarter, sales to Extra European markets decreased by 10.4%
due to lower LNG volumes marketed in the Far East.
Electricity sales were 9.45 TWh in the first quarter of 2016, up by 0.98 TWh, or 11.6%, from the corresponding period of 2015, mainly due to higher volumes traded on the free market.
- 18 -
Table of Contents
Refining & Marketing
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | % Ch. | |||||
| RESULTS | (euro million) |
| 3,875 | Net sales from operations | 4,371 | 2,916 | (33.3 | ) | |||||||||
| (529 | ) | Operating profit (loss) | 285 | 18 | (93.7 | ) | ||||||||
| 503 | Exclusion of inventory holding (gains) losses | (345 | ) | (19 | ) | |||||||||
| 119 | Exclusion of special items: | 152 | 67 | |||||||||||
| 36 | - environmental charges | 20 | 26 | |||||||||||
| 61 | - asset impairments | 27 | 13 | |||||||||||
| - net gains on disposal of assets | (1 | ) | ||||||||||||
| 6 | - provision for redundancy incentives | 3 | 2 | |||||||||||
| 11 | - commodity derivatives | 93 | 25 | |||||||||||
| (1 | ) | - exchange rate differences and derivatives | (3 | ) | (1 | ) | ||||||||
| 6 | - other | 13 | 2 | |||||||||||
| 93 | Adjusted operating profit (loss) | 92 | 66 | (28.3 | ) | |||||||||
| (3 | ) | Net finance income (expense) (a) | (1 | ) | (1 | ) | ||||||||
| 35 | Net income (expense) from investments (a) | 35 | 20 | |||||||||||
| (46 | ) | Income taxes (a) | (55 | ) | (41 | ) | ||||||||
| 36.8 | Tax rate (%) | 43.7 | 48.2 | |||||||||||
| 79 | Adjusted net profit (loss) | 71 | 44 | (38.0 | ) | |||||||||
| 174 | Capital expenditure | 73 | 49 | (32.9 | ) | |||||||||
| Global indicator refining margin | ||||||||||||||
| 6.56 | Standard Eni Refining Margin (SERM) (b) | ($/bbl) | 7.57 | 4.18 | (44.8 | ) | ||||||||
| REFINING THROUGHPUTS AND SALES | (mmtonnes) | |||||||||||||
| 5.71 | Refining throughputs in Italy | 5.78 | 5.26 | (9.0 | ) | |||||||||
| 6.40 | Refining throughputs on own account | 6.91 | 5.90 | (14.6 | ) | |||||||||
| 5.65 | - Italy | 5.68 | 5.20 | (8.5 | ) | |||||||||
| 0.75 | - Rest of Europe | 1.23 | 0.70 | (43.1 | ) | |||||||||
| 0.06 | Green refining throughputs | 0.04 | 0.04 | |||||||||||
| 2.19 | Retail sales in Europe | 2.05 | 2.00 | (2.4 | ) | |||||||||
| 1.51 | - Italy | 1.36 | 1.37 | 0.7 | ||||||||||
| 0.68 | - Rest of Europe | 0.69 | 0.63 | (8.7 | ) | |||||||||
| 2.86 | Wholesale sales in Europe | 2.77 | 2.55 | (7.9 | ) | |||||||||
| 1.99 | - Italy | 1.69 | 1.84 | 8.9 | ||||||||||
| 0.87 | - Rest of Europe | 1.08 | 0.71 | (34.3 | ) | |||||||||
| 0.11 | Wholesale sales outside Europe | 0.10 | 0.10 | |||||||||||
(a) Excluding special items.
(b) In USD per barrel. Source: Eni calculations. It gauges the
profitability of Eni’s refineries against the typical raw
material slate and yields.
Results
In the first quarter of 2016, the Refining & Marketing segment reported adjusted operating profit of euro 66 million, down by euro 26 million, or 28% compared to the first quarter of 2015. This result reflected a deteriorated refining margin scenario (Standard Eni Refining Margin - SERM decreased by 44.8% to 4.2 $/bl, compared to 7.6 $/bl reported in the corresponding period of the previous year), partially offset by optimization and efficiency initiatives. Marketing activities reported better results on the back of improved margins, compared to the depressed environment one year ago.
Special charges excluded from adjusted operating profit of the first quarter of 2016 amounted to a net positive of euro 67 million. This comprised impairment losses to write down capital expenditure of the period at assets impaired in previous reporting periods (euro 13 million), environmental charges (euro 26 million) as well as fair-value evaluation of certain commodity derivatives (charges of euro 25 million in the quarter) lacking the formal criteria to be accounted as hedges under IFRS.
- 19 -
Table of Contents
Adjusted net profit in the quarter amounted to euro 44 million, down by euro 27 million from the corresponding period of the previous year. This reflected lower operating performance and lower incomes from investments.
Operating review
In the first quarter of 2016, the Standard Eni
Refining Margin (SERM) almost halved its value to 4.2 $/bl,
compared to 7.6 $/bl reported in the first quarter of 2015),
reflecting weaker gasoil prices.
In this context, Eni refining throughputs amounted to 5.90 mmtonnes, down by 14.6%. On a homogeneous basis, when excluding the impact of the disposal of CRC refinery in Czech Republic finalized on April 30, 2015, refining throughputs in the quarter reported a decrease of 7.7%. Volumes processed in Italy were down by 8.5% mainly due to planned maintenance standstills of Sannazzaro and Taranto sites. The volumes of biofuels produced from vegetable oil at Venice Green Refinery were stable compared to the corresponding period of the previous year.
Retail sales in Italy of 1.37 mmtonnes in the quarter were barely unchanged. Eni’s retail market share was 23.9%, down by 0.6 percentage points from the first quarter of 2015.
Wholesale sales in Italy (1.84 mmtonnes in the first quarter of 2016) were up by 8.9% compared to the first quarter of 2015. This result reflected higher sales of gasoline, gasoil and fuel oil bunker, partially offset by lower volumes of jet fuels and bitumen.
Retail and wholesale sales in the rest of Europe decreased by the corresponding period of 2015 mainly due to the assets disposal in Romania, finalized in February 2015 and assets in Czech Republic and Slovakia finalized in July 2015. The volumes traded in other markets remained stable.
- 20 -
Table of Contents
Summarized Group profit and loss account
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | % Ch. | |||||
| 13,889 | Net sales from operations | 19,988 | 12,357 | (38.2 | ) | |||||||
| 535 | Other income and revenues | 530 | 200 | (62.3 | ) | |||||||
| (12,545 | ) | Operating expenses | (16,620 | ) | (10,899 | ) | 34.4 | |||||
| (105 | ) | Other operating income (expense) | (22 | ) | (117 | ) | .. | |||||
| (7,367 | ) | Depreciation, depletion, amortization and impairments | (2,207 | ) | (1,827 | ) | 17.2 | |||||
| (497 | ) | Write-off | (70 | ) | (35 | ) | 50.0 | |||||
| (6,090 | ) | Operating profit (loss) | 1,599 | (321 | ) | .. | ||||||
| (488 | ) | Finance income (expense) | (649 | ) | (140 | ) | 78.4 | |||||
| (370 | ) | Income (expense) from investments | 276 | 20 | (92.8 | ) | ||||||
| (6,948 | ) | Profit (loss) before income taxes | 1,226 | (441 | ) | .. | ||||||
| (126 | ) | Income taxes | (752 | ) | (359 | ) | 52.3 | |||||
| .. | Tax rate (%) | 61.3 | .. | |||||||||
| (7,074 | ) | Net profit (loss) - continuing operations | 474 | (800 | ) | .. | ||||||
| (2,044 | ) | Net profit (loss) - discontinued operations | 272 | 11 | (96.0 | ) | ||||||
| (9,118 | ) | Net profit (loss) | 746 | (789 | ) | .. | ||||||
| (9,017 | ) | Eni's shareholders | 832 | (792 | ) | .. | ||||||
| (7,373 | ) | - continuing operations | 617 | (803 | ) | .. | ||||||
| (1,644 | ) | - discontinued operations | 215 | 11 | (94.9 | ) | ||||||
| (101 | ) | Non-controlling interest | (86 | ) | 3 | .. | ||||||
| 299 | - continuing operations | (143 | ) | 3 | .. | |||||||
| (400 | ) | - discontinued operations | 57 | .. | ||||||||
| (7,373 | ) | Net profit (loss) attributable to Eni's shareholders - continuing operations | 617 | (803 | ) | .. | ||||||
| 365 | Exclusion of inventory holding (gains) losses | (59 | ) | 168 | ||||||||
| 6,521 | Exclusion of special items | (104 | ) | 156 | ||||||||
| (487 | ) | Adjusted net profit (loss) attributable to Eni's shareholders - continuing operations (a) | 454 | (479 | ) | .. | ||||||
| 179 | Reinstatement of intercompany transactions vs. discontinued operations | 247 | 402 | |||||||||
| (308 | ) | Adjusted net profit (loss) attributable to Eni's shareholders on standalone basis (a) | 701 | (77 | ) | .. | ||||||
(a) For a detailed explanation and reconciliation of standalone adjusted results which exclude as usual the items "profit/loss on stock" and extraordinary gains and losses (special items), while they reinstate the effects relating the elimination of gains and losses on intercompany transactions with discontinued operations see the following pages.
- 21 -
Table of Contents
Non-GAAP measures
Reconciliation of reported operating profit and reported net
profit to results on an adjusted basis
Management assesses the underlying performance of the
Group’s business segments looking at certain Non-GAAP
measures of results from operations. Those Non-GAAP measures are
the adjusted operating profit and the adjusted net profit, which
exclude from reported operating profit and reported net profit
the impact of extraordinary gains and losses ("special
items") pre-tax and post-tax respectively, as well as of the
profit/loss on stock. Special items mainly comprise asset
impairment losses, gains on disposal, restructuring charges,
environmental and other provisions, the fair value of certain
derivative contracts lacking the formal criteria to be accounted
as hedges and write-downs of deferred tax assets. The profit/loss
on stock is the difference between the current costs of supplies
and the cost determined in accordance to the weighted-average
cost accounting method for the evaluation of inventories as
provided by IFRSs.
Furthermore, considering the process to dispose of the two
business segments "Chemical" and "E&C"
(insofar as 2015 comparative periods are concerned), which is
underway at the reporting date and the related accounting of the
two disposal groups as discontinued operations in accordance to
IFRS 5, management has presented in this press release additional
Non-GAAP measures to assess the performance of the continuing
operations. Those measures are the standalone adjusted operating
profit and the standalone adjusted net profit, which reinstate in
the results of the continuing operations the effect related to
the elimination of profit on intercompany transactions with the
discontinued operations. Those Non-GAAP measures obtain a
representation of the performance of the continuing operations
anticipating the effect of the derecognition of the discontinued
operations. A corresponding alternative performance measure has
been presented for the cash flow from operating activities.
| (euro million) |
| First Quarter 2016 | DISCONTINUED OPERATIONS | |||||||||||||||||||||
Exploration &
Production |
Gas & Power |
Refining &
Marketing |
Corporate and other
activities |
Chemicals |
Impact of
unrealized intragroup profit elimination |
GROUP |
Chemicals |
Consolidation
adjustments |
Total |
CONTINUING
OPERATIONS |
Reinstatement of
intercompany transactions vs. discontinued operations |
CONTINUING
OPERATIONS - on standalone basis |
||||||||||||||
| Reported operating profit (loss) | 94 | 83 | 18 | (98 | ) | 38 | (22 | ) | 113 | (38 | ) | (396 | ) | (434 | ) | (321 | ) | 75 | |||||||||||||||||||||
| Exclusion of inventory holding (gains) losses | 128 | (19 | ) | 82 | 138 | 329 | (82 | ) | (82 | ) | 247 | 247 | |||||||||||||||||||||||||||
| Exclusion of special items: | |||||||||||||||||||||||||||||||||||||||
| environmental charges | 26 | (3 | ) | 23 | 3 | 3 | 26 | 26 | |||||||||||||||||||||||||||||||
| asset impairments | 13 | 4 | 17 | 17 | 17 | ||||||||||||||||||||||||||||||||||
| impairment of exploration projects | 7 | 7 | 7 | 7 | |||||||||||||||||||||||||||||||||||
| net gains on disposal of assets | |||||||||||||||||||||||||||||||||||||||
| risk provisions | |||||||||||||||||||||||||||||||||||||||
| provision for redundancy incentives | 1 | 2 | 2 | 2 | 7 | (2 | ) | (2 | ) | 5 | 5 | ||||||||||||||||||||||||||||
| commodity derivatives | 4 | 103 | 25 | 1 | 133 | (1 | ) | 1 | 133 | 132 | |||||||||||||||||||||||||||||
| exchange rate differences and derivatives | (39 | ) | (1 | ) | (2 | ) | (42 | ) | 2 | (4 | ) | (2 | ) | (44 | ) | (40 | ) | ||||||||||||||||||||||
| other | (11 | ) | 10 | 2 | 2 | 1 | 4 | (1 | ) | (1 | ) | 3 | 3 | ||||||||||||||||||||||||||
| Special items of operating profit (loss) | 1 | 74 | 67 | 8 | (1 | ) | 149 | 1 | (3 | ) | (2 | ) | 147 | 150 | |||||||||||||||||||||||||
| Adjusted operating profit (loss) | 95 | 285 | 66 | (90 | ) | 119 | 116 | 591 | (119 | ) | (399 | ) | (518 | ) | 73 | 399 | 472 | ||||||||||||||||||||||
| Net finance (expense) income (a) | (58 | ) | 2 | (1 | ) | (34 | ) | 2 | (89 | ) | (2 | ) | (1 | ) | (3 | ) | (92 | ) | 1 | (91 | ) | ||||||||||||||||||
| Net income (expense) from investments (a) | 25 | 5 | 20 | (7 | ) | 43 | 43 | 43 | |||||||||||||||||||||||||||||||
| Income taxes (a) | (307 | ) | (128 | ) | (41 | ) | 16 | (17 | ) | (38 | ) | (515 | ) | 17 | (2 | ) | 15 | (500 | ) | 2 | (498 | ) | |||||||||||||||||
| Tax rate (%) | .. | 43.8 | 48.2 | 94.5 | .. | .. | |||||||||||||||||||||||||||||||||
| Adjusted net profit (loss) | (245 | ) | 164 | 44 | (115 | ) | 104 | 78 | 30 | (104 | ) | (402 | ) | (506 | ) | (476 | ) | 402 | (74 | ) | |||||||||||||||||||
| of which: | |||||||||||||||||||||||||||||||||||||||
| - Adjusted net profit (loss) of non-controlling interest | 3 | 3 | 3 | ||||||||||||||||||||||||||||||||||||
| - Adjusted net profit (loss) attributable to Eni's shareholders | 27 | (506 | ) | (479 | ) | 402 | (77 | ) | |||||||||||||||||||||||||||||||
| Reported net profit (loss) attributable to Eni's shareholders | (792 | ) | (11 | ) | (803 | ) | (803 | ) | |||||||||||||||||||||||||||||||
| Exclusion of inventory holding (gains) losses | 224 | (56 | ) | 168 | 168 | ||||||||||||||||||||||||||||||||||
| Exclusion of special items | 595 | (439 | ) | 156 | 156 | ||||||||||||||||||||||||||||||||||
| Reinstatement of intercompany transactions vs. discontinued operations | 402 | ||||||||||||||||||||||||||||||||||||||
| Adjusted net profit (loss) attributable to Eni's shareholders | 27 | (506 | ) | (479 | ) | (77 | ) | ||||||||||||||||||||||||||||||||
(a) Excluding special items.
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| 3,960 | Net cash provided by operating activities - continuing operations | 2,222 | 862 | ||||
| (5 | ) | Reinstatement of intercompany transactions vs. discontinued operations | 668 | 404 | |||
| 3,955 | Net cash provided by operating activities on standalone basis | 2,890 | 1,266 | ||||
- 22 -
Table of Contents
| First Quarter 2015 | DISCONTINUED OPERATIONS | |||||||||||||||||||||||
Exploration &
Production |
Gas & Power |
Refining &
Marketing |
Corporate and other
activities |
Engineering &
Construction |
Chemicals |
Impact of
unrealized intragroup profit elimination |
GROUP |
Engineering &
Construction and Chemicals |
Consolidation
adjustments |
Total |
CONTINUING
OPERATIONS |
Reinstatement of
intercompany transactions vs. discontinued operations |
CONTINUING
OPERATIONS - on standalone basis |
|||||||||||||||
| Reported operating profit (loss) | 1,413 | 186 | 285 | (93 | ) | 162 | (186 | ) | (101 | ) | 1,666 | 24 | (91 | ) | (67 | ) | 1,599 | 1,690 | ||||||||||||||||||||||||
| Exclusion of inventory holding (gains) losses | 31 | (345 | ) | 212 | 227 | 125 | (212 | ) | (212 | ) | (87 | ) | (87 | ) | ||||||||||||||||||||||||||||
| Exclusion of special items: | ||||||||||||||||||||||||||||||||||||||||||
| environmental charges | 20 | 20 | 20 | 20 | ||||||||||||||||||||||||||||||||||||||
| asset impairments | 27 | 1 | 28 | 28 | 28 | |||||||||||||||||||||||||||||||||||||
| impairment of exploration projects | ||||||||||||||||||||||||||||||||||||||||||
| net gains on disposal of assets | (325 | ) | (1 | ) | (326 | ) | (326 | ) | (326 | ) | ||||||||||||||||||||||||||||||||
| risk provisions | ||||||||||||||||||||||||||||||||||||||||||
| provision for redundancy incentives | 1 | 3 | 1 | 1 | 6 | (2 | ) | (2 | ) | 4 | 4 | |||||||||||||||||||||||||||||||
| commodity derivatives | 11 | 8 | 93 | (3 | ) | (3 | ) | 106 | 6 | (6 | ) | 106 | 112 | |||||||||||||||||||||||||||||
| exchange rate differences and derivatives | (17 | ) | 69 | (3 | ) | 17 | 66 | (17 | ) | 12 | (5 | ) | 61 | 49 | ||||||||||||||||||||||||||||
| other | (3 | ) | 13 | 3 | (12 | ) | 1 | 12 | 12 | 13 | 13 | |||||||||||||||||||||||||||||||
| Special items of operating profit (loss) | (333 | ) | 77 | 152 | 4 | (2 | ) | 3 | (99 | ) | (1 | ) | 6 | 5 | (94 | ) | (100 | ) | ||||||||||||||||||||||||
| Adjusted operating profit (loss) | 1,080 | 294 | 92 | (89 | ) | 160 | 29 | 126 | 1,692 | (189 | ) | (85 | ) | (274 | ) | 1,418 | 85 | 1,503 | ||||||||||||||||||||||||
| Net finance (expense) income (a) | (64 | ) | 2 | (1 | ) | (116 | ) | (2 | ) | (181 | ) | 2 | (18 | ) | (16 | ) | (197 | ) | 18 | (179 | ) | |||||||||||||||||||||
| Net income (expense) from investments (a) | 23 | 3 | 35 | 230 | 7 | 298 | (7 | ) | (7 | ) | 291 | 291 | ||||||||||||||||||||||||||||||
| Income taxes (a) | (795 | ) | (81 | ) | (55 | ) | 43 | (54 | ) | (4 | ) | (33 | ) | (979 | ) | 58 | (7 | ) | 51 | (928 | ) | 7 | (921 | ) | ||||||||||||||||||
| Tax rate (%) | 76.5 | 27.1 | 43.7 | 32.7 | 54.1 | 61.4 | 57.0 | |||||||||||||||||||||||||||||||||||
| Adjusted net profit (loss) | 244 | 218 | 71 | 68 | 111 | 25 | 93 | 830 | (136 | ) | (110 | ) | (246 | ) | 584 | 110 | 694 | |||||||||||||||||||||||||
| of which: | ||||||||||||||||||||||||||||||||||||||||||
| - Adjusted net profit (loss) of non-controlling interest | 56 | 74 | 130 | (137 | ) | (7 | ) | |||||||||||||||||||||||||||||||||||
| - Adjusted net profit (loss) attributable to Eni's shareholders | 774 | (320 | ) | 454 | 247 | 701 | ||||||||||||||||||||||||||||||||||||
| Reported net profit (loss) attributable to Eni's shareholders | 832 | (215 | ) | 617 | 617 | |||||||||||||||||||||||||||||||||||||
| Exclusion of inventory holding (gains) losses | 87 | (146 | ) | (59 | ) | (59 | ) | |||||||||||||||||||||||||||||||||||
| Exclusion of special items | (145 | ) | 41 | (104 | ) | (104 | ) | |||||||||||||||||||||||||||||||||||
| Reinstatement of intercompany transactions vs. discontinued operations | 247 | |||||||||||||||||||||||||||||||||||||||||
| Adjusted net profit (loss) attributable to Eni's shareholders | 774 | (320 | ) | 454 | 701 | |||||||||||||||||||||||||||||||||||||
(a) Excluding special items.
- 23 -
Table of Contents
| Fourth Quarter 2015 | DISCONTINUED OPERATIONS | |||||||||||||||||||||||
Exploration &
Production |
Gas & Power |
Refining &
Marketing |
Corporate and other
activities |
Engineering &
Construction |
Chemicals |
Impact of
unrealized intragroup profit elimination |
GROUP |
Engineering &
Construction and Chemicals |
Consolidation
adjustments |
Total |
CONTINUING
OPERATIONS |
Reinstatement of
intercompany transactions vs. discontinued operations |
CONTINUING
OPERATIONS - on standalone basis |
|||||||||||||||
| Reported operating profit (loss) | (4,696 | ) | (894 | ) | (529 | ) | (149 | ) | (59 | ) | (1,379 | ) | 57 | (7,649 | ) | 1,438 | 121 | 1,559 | (6,090 | ) | (6,211 | ) | ||||||||||||||||||||
| Exclusion of inventory holding (gains) losses | 96 | 503 | 64 | (72 | ) | 591 | (64 | ) | (64 | ) | 527 | 527 | ||||||||||||||||||||||||||||||
| Exclusion of special items: | ||||||||||||||||||||||||||||||||||||||||||
| environmental charges | 36 | 24 | (11 | ) | 49 | 11 | 11 | 60 | 60 | |||||||||||||||||||||||||||||||||
| asset impairments | 5,100 | 137 | 61 | 10 | 379 | 1,372 | 7,059 | (1,751 | ) | (1,751 | ) | 5,308 | 5,308 | |||||||||||||||||||||||||||||
| impairment of exploration projects | 169 | 169 | 169 | 169 | ||||||||||||||||||||||||||||||||||||||
| net gains on disposal of assets | (37 | ) | 6 | (31 | ) | (31 | ) | (31 | ) | |||||||||||||||||||||||||||||||||
| risk provisions | 132 | (1 | ) | 2 | 133 | (2 | ) | (2 | ) | 131 | 131 | |||||||||||||||||||||||||||||||
| provision for redundancy incentives | (1 | ) | (1 | ) | 6 | 1 | 8 | 1 | 14 | (9 | ) | (9 | ) | 5 | 5 | |||||||||||||||||||||||||||
| commodity derivatives | (14 | ) | 144 | 11 | 141 | 141 | 141 | |||||||||||||||||||||||||||||||||||
| exchange rate differences and derivatives | (51 | ) | 7 | (1 | ) | (5 | ) | (50 | ) | 5 | 1 | 6 | (44 | ) | (45 | ) | ||||||||||||||||||||||||||
| other | 128 | 397 | 6 | 8 | 7 | (3 | ) | 543 | (4 | ) | (4 | ) | 539 | 539 | ||||||||||||||||||||||||||||
| Special items of operating profit (loss) | 5,294 | 816 | 119 | 48 | 394 | 1,356 | 8,027 | (1,750 | ) | 1 | (1,749 | ) | 6,278 | 6,277 | ||||||||||||||||||||||||||||
| Adjusted operating profit (loss) | 598 | 18 | 93 | (101 | ) | 335 | 41 | (15 | ) | 969 | (376 | ) | 122 | (254 | ) | 715 | (122 | ) | 593 | |||||||||||||||||||||||
| Net finance (expense) income (a) | (72 | ) | 5 | (3 | ) | (240 | ) | (1 | ) | 2 | (309 | ) | (1 | ) | (1 | ) | (310 | ) | (310 | ) | ||||||||||||||||||||||
| Net income (expense) from investments (a) | 100 | 5 | 35 | (6 | ) | 37 | (4 | ) | 167 | (33 | ) | (33 | ) | 134 | 134 | |||||||||||||||||||||||||||
| Income taxes (a) | (599 | ) | (64 | ) | (46 | ) | (12 | ) | (136 | ) | (32 | ) | (15 | ) | (904 | ) | 168 | (15 | ) | 153 | (751 | ) | 15 | (736 | ) | |||||||||||||||||
| Tax rate (%) | 95.7 | .. | 36.8 | .. | .. | .. | .. | |||||||||||||||||||||||||||||||||||
| Adjusted net profit (loss) | 27 | (36 | ) | 79 | (359 | ) | 235 | 7 | (30 | ) | (77 | ) | (242 | ) | 107 | (135 | ) | (212 | ) | (107 | ) | (319 | ) | |||||||||||||||||||
| of which: | ||||||||||||||||||||||||||||||||||||||||||
| - Adjusted net profit (loss) of non-controlling interest | 123 | 152 | 275 | (286 | ) | (11 | ) | |||||||||||||||||||||||||||||||||||
| - Adjusted net profit (loss) attributable to Eni's shareholders | (200 | ) | (287 | ) | (487 | ) | 179 | (308 | ) | |||||||||||||||||||||||||||||||||
| Reported net profit (loss) attributable to Eni's shareholders | (9,017 | ) | 1,644 | (7,373 | ) | (7,373 | ) | |||||||||||||||||||||||||||||||||||
| Exclusion of inventory holding (gains) losses | 409 | (44 | ) | 365 | 365 | |||||||||||||||||||||||||||||||||||||
| Exclusion of special items | 8,408 | (1,887 | ) | 6,521 | 6,521 | |||||||||||||||||||||||||||||||||||||
| Reinstatement of intercompany transactions vs. discontinued operations | 179 | |||||||||||||||||||||||||||||||||||||||||
| Adjusted net profit (loss) attributable to Eni's shareholders | (200 | ) | (287 | ) | (487 | ) | (308 | ) | ||||||||||||||||||||||||||||||||||
(a) Excluding special items.
- 24 -
Table of Contents
Breakdown of special items
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| 49 | Environmental charges | 20 | 23 | ||||||
| 7,059 | Asset impairments | 28 | 17 | ||||||
| 169 | Impairment of exploration projects | 7 | |||||||
| (31 | ) | Net gains on disposal of assets | (326 | ) | |||||
| 133 | Risk provisions | ||||||||
| 14 | Provisions for redundancy incentives | 6 | 7 | ||||||
| 141 | Commodity derivatives | 106 | 133 | ||||||
| (50 | ) | Exchange rate differences and derivatives | 66 | (42 | ) | ||||
| 543 | Other | 1 | 4 | ||||||
| 8,027 | Special items of operating profit (loss) | (99 | ) | 149 | |||||
| 195 | Net finance (income) expense | 328 | 96 | ||||||
| of which: | |||||||||
| 50 | - exchange rate differences and derivatives | (66 | ) | 42 | |||||
| 504 | Net income (expense) from investments | 2 | 386 | ||||||
| of which: | |||||||||
| 489 | - impairments/revaluation of equity investments | 365 | |||||||
| (93 | ) | Income taxes | (234 | ) | (36 | ) | |||
| of which: | |||||||||
| 810 | - impairment of deferred tax assets of Italian subsidiaries | ||||||||
| 860 | - impairment of deferred tax assets of upstream business | ||||||||
| (1,763 | ) | - taxes on special items of operating profit (loss) and other special items | (234 | ) | (36 | ) | |||
| 8,633 | Total special items of net profit (loss) | (3 | ) | 595 | |||||
| Attributable to: | |||||||||
| 225 | - Non-controlling interest | 142 | |||||||
| 8,408 | - Eni's shareholders | (145 | ) | 595 | |||||
| of which: | |||||||||
| 1,887 | special items of discontinued operations | (41 | ) | 439 | |||||
Analysis of Profit and Loss account items of continuing operations
Net sales from operations
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | % Ch. | |||||
| 4,977 | Exploration & Production | 5,212 | 3,356 | (35.6 | ) | |||||||
| 10,609 | Gas & Power | 16,373 | 10,030 | (38.7 | ) | |||||||
| 3,875 | Refining & Marketing | 4,371 | 2,916 | (33.3 | ) | |||||||
| 391 | Corporate and other activities | 353 | 310 | (12.2 | ) | |||||||
| (206 | ) | Impact of unrealized intragroup profit elimination | (28 | ) | ||||||||
| (5,757 | ) | Consolidation adjustment | (6,293 | ) | (4,255 | ) | ||||||
| 13,889 | 19,988 | 12,357 | (38.2 | ) | ||||||||
- 25 -
Table of Contents
Operating expenses
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | % Ch. | |||||
| 11,895 | Purchases, services and other | 15,911 | 10,179 | (36.0 | ) | ||||
| 191 | of which: - other special items | 20 | 26 | ||||||
| 650 | Payroll and related costs | 709 | 720 | 1.6 | |||||
| 5 | of which: - provision for redundancy incentives and other | 4 | 5 | ||||||
| 12,545 | 16,620 | 10,899 | (34.4 | ) | |||||
Depreciation, depletion, amortization, impairments and write-off
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | % Ch. | |||||
| 1,867 | Exploration & Production | 1,993 | 1,624 | (18.5 | ) | |||||||
| 97 | Gas & Power | 89 | 86 | (3.4 | ) | |||||||
| 87 | Refining & Marketing | 85 | 88 | 3.5 | ||||||||
| 15 | Corporate and other activities | 18 | 19 | 5.6 | ||||||||
| (7 | ) | Impact of unrealized intragroup profit elimination | (6 | ) | (7 | ) | ||||||
| 2,059 | Total depreciation, depletion and amortization | 2,179 | 1,810 | (16.9 | ) | |||||||
| 5,308 | Impairments | 28 | 17 | (39.3 | ) | |||||||
| 7,367 | Depreciation, depletion, amortization and impairments | 2,207 | 1,827 | (17.2 | ) | |||||||
| 497 | Write-off | 70 | 35 | (50.0 | ) | |||||||
| 7,864 | 2,277 | 1,862 | (18.2 | ) | ||||||||
Income (expense) from investments
| (euro million) | |||||||||
| First Quarter of 2015 | Exploration & Production | Gas &Power | Refining & Marketing | Corporate and other activities | Group | ||||
| Share of gains (losses) from equity-accounted investments | 26 | 5 | 24 | 55 | ||||||||||
| Dividends | 2 | 20 | 22 | |||||||||||
| Net gains on disposal | (32 | ) | (32 | ) | ||||||||||
| Other income (expense), net | (3 | ) | (2 | ) | (20 | ) | (25 | ) | ||||||
| 25 | 5 | 18 | (28 | ) | 20 | |||||||||
- 26 -
Table of Contents
Leverage and net borrowings
Leverage is a measure used by management to assess the Company’s level of indebtedness. It is calculated as a ratio of net borrowings - which is calculated by excluding cash and cash equivalents and certain very liquid assets from finance debt to shareholders’ equity, including non-controlling interest. Management periodically reviews leverage in order to assess the soundness and efficiency of the Group balance sheet in terms of optimal mix between net borrowings and net equity, and to carry out benchmark analysis with industry standards.
| (euro million) |
Dec. 31, 2015 |
March 31, 2016 |
Change vs. |
||||
| Total debt | 27,776 | 23,911 | (3,865 | ) | |||||
| Short-term debt | 8,383 | 4,471 | (3,912 | ) | |||||
| Long-term debt | 19,393 | 19,440 | 47 | ||||||
| Cash and cash equivalents | (5,200 | ) | (6,023 | ) | (823 | ) | |||
| Securities held for trading and other securities held for non-operating purposes | (5,028 | ) | (5,007 | ) | 21 | ||||
| Financing receivables held for non-operating purposes | (685 | ) | (671 | ) | 14 | ||||
| Net borrowings | 16,863 | 12,210 | (4,653 | ) | |||||
| Shareholders' equity including non-controlling interest | 57,115 | 52,589 | (4,526 | ) | |||||
| Leverage | 0.30 | 0.23 | (0.07 | ) | |||||
Net borrowings are calculated under Consob provisions on Net Financial Position (Com. No. DEM/6064293 of 2006).
Bonds maturing in the 18-months period starting on March 31, 2016
| (euro
million) |
| Issuing entity | Amount at March 31, 2016 (a) |
| Eni Finance International SA | 103 |
| 103 | |
(a) Amounts include interest
accrued and discount on issue.
In the first quarter of 2016 Eni did not issue bonds.
- 27 -
Table of Contents
Discontinued operations
Main financial data of discontinued operations are provided below.
Chemical - Results of operations and liquidity from third-party transactions
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| 1,083 | Total revenues | 1,071 | 994 | ||||||
| (2,070 | ) | Operating expenses, depreciation, depletion, amortization and impairments | (900 | ) | (560 | ) | |||
| (987 | ) | Operating profit (loss) | 171 | 434 | |||||
| (2 | ) | Finance income (expense) | 5 | 5 | |||||
| (993 | ) | Profit (loss) before income taxes | 176 | 439 | |||||
| (382 | ) | Income taxes | (6 | ) | (15 | ) | |||
| (1,375 | ) | Net profit (loss) | 170 | 424 | |||||
| 1 | Net borrowings | (6 | ) | 12 | |||||
| 484 | Net cash provided by operating activities | 414 | 99 | ||||||
| (67 | ) | Net cash provided by investing activities | (54 | ) | (46 | ) | |||
| 3 | Net cash provided by financing activities | 1 | 1 | ||||||
| 68 | Capital expenditure | 30 | 36 | ||||||
Chemical - Results of operations and liquidity from third-party and intercompany transactions
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| 1,140 | Total revenues | 1,139 | 1,033 | ||||||
| (2,519 | ) | Operating expenses, depreciation, depletion, amortization and impairments | (1,325 | ) | (995 | ) | |||
| (1,379 | ) | Operating profit (loss) | (186 | ) | 38 | ||||
| 41 | Adjusted operating profit (loss) | 29 | 119 | ||||||
| (11 | ) | Finance income (expense) | 8 | (8 | ) | ||||
| (1,394 | ) | Profit (loss) before income taxes | (178 | ) | 30 | ||||
| (382 | ) | Income taxes | (6 | ) | (15 | ) | |||
| (1,776 | ) | Net profit (loss) | (184 | ) | 15 | ||||
| 7 | Adjusted net profit (loss) | 25 | 104 | ||||||
| 37 | Net borrowings | 2,657 | 1,388 | ||||||
| 9 | Net cash provided by operating activities | (58 | ) | 104 | |||||
| (48 | ) | Net cash provided by investing activities | (58 | ) | (47 | ) | |||
| 69 | Net cash provided by financing activities | 147 | (167 | ) | |||||
| 68 | Capital expenditure | 30 | 36 | ||||||
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| Production | (ktonnes) | |||||||
| 842 | Intermediates | 822 | 874 | |||||
| 580 | Polymers | 596 | 564 | |||||
| 1,422 | 1,418 | 1,438 | ||||||
- 28 -
Table of Contents
Consolidated financial statements
BALANCE SHEET
| (euro million) | ||||
| Jan. 1, 2015 | Dec. 31, 2015 | Mar. 31, 2016 | ||||
| ASSETS | |||||||||
| Current assets | |||||||||
| 6,614 | Cash and cash equivalents | 5,200 | 6,023 | ||||||
| 5,024 | Other financial activities held for trading | 5,028 | 4,995 | ||||||
| 257 | Other financial assets available for sale | 282 | 315 | ||||||
| 28,601 | Trade and other receivables | 20,950 | 20,969 | ||||||
| 7,555 | Inventories | 3,910 | 3,392 | ||||||
| 762 | Current tax assets | 351 | 391 | ||||||
| 1,209 | Other current tax assets | 622 | 603 | ||||||
| 4,385 | Other current assets | 3,639 | 3,673 | ||||||
| 54,407 | 39,982 | 40,361 | |||||||
| Non-current assets | |||||||||
| 75,991 | Property, plant and equipment | 67,682 | 66,094 | ||||||
| 1,581 | Inventory - compulsory stock | 909 | 871 | ||||||
| 4,420 | Intangible assets | 2,979 | 2,905 | ||||||
| 3,172 | Equity-accounted investments | 2,682 | 4,323 | ||||||
| 2,015 | Other investments | 644 | 272 | ||||||
| 1,042 | Other financial assets | 826 | 795 | ||||||
| 4,670 | Deferred tax assets | 3,833 | 3,681 | ||||||
| 2,773 | Other non-current assets | 1,757 | 1,624 | ||||||
| 95,664 | 81,312 | 80,565 | |||||||
| 456 | Discontinued operations and assets held for sale | 17,516 | 2,052 | ||||||
| 150,527 | TOTAL ASSETS | 138,810 | 122,978 | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
| Current liabilities | |||||||||
| 2,716 | Short-term debt | 5,712 | 3,669 | ||||||
| 3,859 | Current portion of long-term debt | 2,671 | 802 | ||||||
| 23,703 | Trade and other payables | 14,615 | 14,939 | ||||||
| 534 | Income taxes payable | 422 | 423 | ||||||
| 1,873 | Other taxes payable | 1,442 | 2,100 | ||||||
| 4,489 | Other current liabilities | 4,703 | 4,761 | ||||||
| 37,174 | 29,565 | 26,694 | |||||||
| Non-current liabilities | |||||||||
| 19,316 | Long-term debt | 19,393 | 19,440 | ||||||
| 15,882 | Provisions for contingencies | 15,247 | 13,846 | ||||||
| 1,313 | Provisions for employee benefits | 1,056 | 1,055 | ||||||
| 8,751 | Deferred tax liabilities | 7,512 | 6,949 | ||||||
| 2,285 | Other non-current liabilities | 1,852 | 1,764 | ||||||
| 47,547 | 45,060 | 43,054 | |||||||
| 165 | Liabilities directly associated with discontinued operations and assets held for sale | 7,070 | 641 | ||||||
| 84,886 | TOTAL LIABILITIES | 81,695 | 70,389 | ||||||
| SHAREHOLDERS' EQUITY | |||||||||
| 2,455 | Non-controlling interest | 1,916 | 47 | ||||||
| Eni shareholders' equity | |||||||||
| 4,005 | Share capital | 4,005 | 4,005 | ||||||
| (284 | ) | Reserve related to the fair value of cash flow hedging derivatives net of tax effect | (474 | ) | (510 | ) | |||
| 60,763 | Other reserves | 62,761 | 50,420 | ||||||
| (581 | ) | Treasury shares | (581 | ) | (581 | ) | |||
| (2,020 | ) | Interim dividend | (1,440 | ) | |||||
| 1,303 | Net profit (loss) | (9,072 | ) | (792 | ) | ||||
| 63,186 | Total Eni shareholders' equity | 55,199 | 52,542 | ||||||
| 65,641 | TOTAL SHAREHOLDERS' EQUITY | 57,115 | 52,589 | ||||||
| 150,527 | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 138,810 | 122,978 | ||||||
- 29 -
Table of Contents
GROUP PROFIT AND LOSS ACCOUNT
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| REVENUES | |||||||||
| 13,889 | Net sales from operations | 19,988 | 12,357 | ||||||
| 535 | Other income and revenues | 530 | 200 | ||||||
| 14,424 | Total revenues | 20,518 | 12,557 | ||||||
| OPERATING EXPENSES | |||||||||
| 11,895 | Purchases, services and other | 15,911 | 10,179 | ||||||
| 650 | Payroll and related costs | 709 | 720 | ||||||
| (105 | ) | OTHER OPERATING (EXPENSE) INCOME | (22 | ) | (117 | ) | |||
| 7,367 | DEPRECIATION, DEPLETION, AMORTIZATION AND IMPAIRMENTS | 2,207 | 1,827 | ||||||
| 497 | WRITE-OFF | 70 | 35 | ||||||
| (6,090 | ) | OPERATING PROFIT (LOSS) | 1,599 | (321 | ) | ||||
| FINANCE INCOME (EXPENSE) | |||||||||
| 1,517 | Finance income | 4,546 | 1,822 | ||||||
| (1,973 | ) | Finance expense | (4,671 | ) | (2,071 | ) | |||
| (9 | ) | Income (expense) from other financial activities held for trading | 16 | (37 | ) | ||||
| (23 | ) | Derivative financial instruments | (540 | ) | 146 | ||||
| (488 | ) | (649 | ) | (140 | ) | ||||
| INCOME (EXPENSE) FROM INVESTMENTS | |||||||||
| (439 | ) | Share of profit (loss) of equity-accounted investments | 16 | 55 | |||||
| 69 | Other gain (loss) from investments | 260 | (35 | ) | |||||
| (370 | ) | 276 | 20 | ||||||
| (6,948 | ) | PROFIT (LOSS) BEFORE INCOME TAXES | 1,226 | (441 | ) | ||||
| (126 | ) | Income taxes | (752 | ) | (359 | ) | |||
| (7,074 | ) | Net profit (loss) - continuing operations | 474 | (800 | ) | ||||
| (2,044 | ) | Net profit (loss) - discontinued operations | 272 | 11 | |||||
| (9,118 | ) | Net profit (loss) | 746 | (789 | ) | ||||
| Eni's shareholders | |||||||||
| (7,373 | ) | - continuing operations | 617 | (803 | ) | ||||
| (1,644 | ) | - discontinued operations | 215 | 11 | |||||
| (9,017 | ) | 832 | (792 | ) | |||||
| Non-controlling interest | |||||||||
| 299 | - continuing operations | (143 | ) | 3 | |||||
| (400 | ) | - discontinued operations | 57 | ||||||
| (101 | ) | (86 | ) | 3 | |||||
| Net profit (loss) per share attributable to Eni's shareholders (euro per share) | |||||||||
| (2.50 | ) | - basic | 0.23 | (0.22 | ) | ||||
| (2.50 | ) | - diluted | 0.23 | (0.22 | ) | ||||
| Net profit (loss) per share - continuing operations attributable to Eni's shareholders (euro per share) | |||||||||
| (2.05 | ) | - basic | 0.17 | (0.22 | ) | ||||
| (2.05 | ) | - diluted | 0.17 | (0.22 | ) | ||||
- 30 -
Table of Contents
COMPREHENSIVE INCOME
| (euro million) |
| First Quarter 2015 | First Quarter 2016 | ||
| Net profit (loss) | 746 | (789 | ) | |||
| Items not reclassifiable to profit and loss account | ||||||
| Items subsequently reclassifiable to profit and loss account | 5,804 | (1,856 | ) | |||
| Foreign currency translation differences | 5,719 | (1,864 | ) | |||
| Change in the fair value of cash flow hedging derivatives | 117 | (44 | ) | |||
| Change in the fair value of other available-for-sale financial instruments | 1 | |||||
| Share of "Other comprehensive income" on equity-accounted entities | 40 | |||||
| Taxation | (33 | ) | 12 | |||
| Total other items of comprehensive income (loss) | 5,804 | (1,856 | ) | |||
| Total comprehensive income (loss) | 6,550 | (2,645 | ) | |||
| attributable to: | ||||||
| Eni's shareholders | 6,574 | (2,648 | ) | |||
| - continuing operations | 6,317 | (2,660 | ) | |||
| - discontinued operations | 257 | 12 | ||||
| Non-controlling interest | (24 | ) | 3 | |||
| - continuing operations | (132 | ) | 3 | |||
| - discontinued operations | 108 | |||||
CHANGES IN SHAREHOLDERS’ EQUITY
| (euro million) |
| Shareholders' equity at December 31, 2015 | 57,115 | ||||
| Total comprehensive income (loss) | (2,645) | ||||
| Deconsolidation of Saipem's non-controlling interest | (1,872) | ||||
| Other changes | (9) | ||||
| Total changes | (4,526 | ) | |||
| Shareholders' equity at March 31, 2016 | 52,589 | ||||
| attributable to: | |||||
| - Eni's shareholders | 52,542 | ||||
| - non-controlling interest | 47 | ||||
- 31 -
Table of Contents
GROUP CASH FLOW STATEMENT
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| (7,074 | ) | Net profit (loss) - continuing operations | 474 | (800 | ) | ||||
| Adjustments to reconcile net profit (loss) to net cash provided by operating activities: | |||||||||
| 7,367 | Depreciation, depletion, amortization and impairments | 2,207 | 1,827 | ||||||
| 497 | Write-off | 70 | 35 | ||||||
| 439 | Share of (profit) loss of equity-accounted investments | (16 | ) | (55 | ) | ||||
| (135 | ) | Gain on disposal of assets, net | (314 | ) | (18 | ) | |||
| (120 | ) | Dividend income | (42 | ) | (22 | ) | |||
| (40 | ) | Interest income | (36 | ) | (66 | ) | |||
| 168 | Interest expense | 167 | 161 | ||||||
| 126 | Income taxes | 752 | 359 | ||||||
| 467 | Other changes | (214 | ) | 70 | |||||
| Changes in working capital: | |||||||||
| 1,028 | - inventories | 204 | 483 | ||||||
| 985 | - trade receivables | (779 | ) | (236 | ) | ||||
| 173 | - trade payables | 611 | 72 | ||||||
| 343 | - provisions for contingencies | (322 | ) | (1,068 | ) | ||||
| 538 | - other assets and liabilities | 895 | 900 | ||||||
| 3,067 | Cash flow from changes in working capital | 609 | 151 | ||||||
| (12 | ) | Net change in the provisions for employee benefits | (15 | ) | 7 | ||||
| 221 | Dividends received | 23 | 5 | ||||||
| 26 | Interest received | 12 | 45 | ||||||
| (152 | ) | Interest paid | (278 | ) | (226 | ) | |||
| (885 | ) | Income taxes paid, net of tax receivables received | (1,177 | ) | (611 | ) | |||
| 3,960 | Net cash provided from operating activities - continuing operations | 2,222 | 862 | ||||||
| 503 | Net cash provided from operating activities - discontinued operations | 17 | 508 | ||||||
| 4,463 | Net cash provided from operating activities | 2,239 | 1,370 | ||||||
| Investing activities: | |||||||||
| (2,793 | ) | - tangible assets | (2,815 | ) | (2,441 | ) | |||
| (58 | ) | - intangible assets | (19 | ) | (14 | ) | |||
| - consolidated subsidiaries and businesses | |||||||||
| (57 | ) | - investments | (61 | ) | (1,124 | ) | |||
| (71 | ) | - securities | (37 | ) | (70 | ) | |||
| (536 | ) | - financing receivables | (378 | ) | (286 | ) | |||
| (622 | ) | - change in payables and receivables in relation to investments and capitalized depreciation | (556 | ) | (72 | ) | |||
| (4,137 | ) | Cash flow from investments | (3,866 | ) | (4,007 | ) | |||
| Disposals: | |||||||||
| 6 | - tangible assets | 395 | 1 | ||||||
| - intangible assets | 4 | ||||||||
| 2 | - consolidated subsidiaries and businesses | 34 | 463 | ||||||
| - cash and cash equivalent related to discontinued operations divested | (889 | ) | |||||||
| 1,345 | - investments | 114 | 341 | ||||||
| 7 | - securities | 10 | 7 | ||||||
| 158 | - financing receivables | 186 | 6,337 | ||||||
| 27 | - change in payables and receivables in relation to disposals | 7 | 32 | ||||||
| 1,545 | Cash flow from disposals | 750 | 6,292 | ||||||
| (2,592 | ) | Net cash used in investing activities (*) | (3,116 | ) | 2,285 | ||||
- 32 -
Table of Contents
GROUP CASH FLOW STATEMENT (continued)
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| 387 | Proceeds from long-term debt | 1,019 | 211 | ||||||
| (1,612 | ) | Repayments of long-term debt | (455 | ) | (1,849 | ) | |||
| 19 | Increase (decrease) in short-term debt | 866 | (2,064 | ) | |||||
| (1,206 | ) | 1,430 | (3,702 | ) | |||||
| (23 | ) | Dividends paid to Eni's shareholders | |||||||
| (1,229 | ) | Net cash used in financing activities | 1,430 | (3,702 | ) | ||||
| (11 | ) | Effect of change in consolidation (inclusion/exclusion of significant/insignificant subsidiaries) | (3 | ) | |||||
| (898 | ) | Cash and cash equivalents relating to discontinued operations divested | 889 | ||||||
| 35 | Effect of exchange rate changes on cash and cash equivalents and other changes | 106 | (19 | ) | |||||
| (232 | ) | Net cash flow for the period | 656 | 823 | |||||
| 5,432 | Cash and cash equivalents - beginning of the period | 6,614 | 5,200 | ||||||
| 5,200 | Cash and cash equivalents - end of the period | 7,270 | 6,023 | ||||||
(*) Net cash used in investing activities included investments and divestments (on net basis) in held-for-trading financial assets and other investments/divestments in certain short-term financial assets. Due to their nature and the circumstance that they are very liquid, these financial assets are netted against finance debt in determining net borrowings. Cash flows of such investments were as follows:
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| (377 | ) | Net cash flows from financing activities | (172 | ) | 5,987 | ||||
SUPPLEMENTAL INFORMATION
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| Effect of disposal of consolidated subsidiaries and businesses | ||||||||
| Current assets | 7 | 6,493 | ||||||
| Non-current assets | 19 | 8,822 | ||||||
| Net borrowings | (17 | ) | (5,818 | ) | ||||
| Current and non-current liabilities | (8 | ) | (6,584 | ) | ||||
| Net effect of disposals | 1 | 2,913 | ||||||
| Current value of residual interests following the loss of control | (1,006 | ) | ||||||
| 2 | Gains on disposal | 34 | ||||||
| Non-controlling interest | (1,872 | ) | ||||||
| 2 | Selling price | 35 | 35 | |||||
| less: | ||||||||
| Net borrowings of discontinued operations | 428 | |||||||
| Cash and cash equivalents | (1 | ) | ||||||
| 2 | Cash flow on disposals | 34 | 463 | |||||
- 33 -
Table of Contents
Capital expenditure
| (euro million) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | % Ch. | |||||
| 2,254 | Exploration & Production | 2,601 | 2,297 | (11.7 | ) | ||||
| - acquisition of proved and unproved properties | 2 | .. | |||||||
| 52 | - g&g costs | 65 | 55 | (15.4 | ) | ||||
| 75 | - exploration | 177 | 90 | (49.2 | ) | ||||
| 2,097 | - development | 2,346 | 2,122 | (9.5 | ) | ||||
| 30 | - other expenditure | 13 | 28 | .. | |||||
| 74 | Gas & Power | 18 | 22 | 22.2 | |||||
| 174 | Refining & Marketing | 73 | 49 | (32.9 | ) | ||||
| 32 | Corporate and other activities | 7 | 9 | 28.6 | |||||
| 147 | Impact of unrealized intragroup profit elimination | 20 | 97 | ||||||
| 2,681 | Capital expenditure - continuing operations | 2,719 | 2,474 | (9.0 | ) | ||||
| 52 | Net cash used in operating activities | 65 | 55 | (15.4 | ) | ||||
| 2,629 | Net cash used in investing activities | 2,654 | 2,419 | (8.9 | ) | ||||
In the first quarter of 2016, capital expenditure amounted to
euro 2,419 million (euro 2,654 million in the first quarter of
2015) and mainly related to:
- development activities deployed mainly in Angola, Egypt,
Indonesia, Kazakhstan, Norway, Ghana and Italy and exploratory
activities primarily in Egypt and Congo;
- refining activity (euro 39 million) with projects designed to
improve the conversion rate and flexibility of refineries, as
well as the upgrade of the refined product retail network (euro
10 million);
- initiatives to improve flexibility of the combined cycle power
plants (euro 8 million).
- 34 -
Table of Contents
Exploration & Production
PRODUCTION OF OIL AND NATURAL GAS BY REGION
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| 1,884 | Production of oil and natural gas (a) (b) | (kboe/d) | 1,697 | 1,754 | ||||
| 169 | Italy | 165 | 154 | |||||
| 192 | Rest of Europe | 186 | 190 | |||||
| 684 | North Africa | 638 | 616 | |||||
| 343 | Sub-Saharan Africa | 342 | 343 | |||||
| 100 | Kazakhstan | 100 | 118 | |||||
| 201 | Rest of Asia | 109 | 132 | |||||
| 170 | America | 128 | 178 | |||||
| 25 | Australia and Oceania | 29 | 23 | |||||
| 166.2 | Production sold (a) | (mmboe) | 144.5 | 151.5 | ||||
PRODUCTION OF LIQUIDS BY REGION
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| 998 | Production of liquids (a) | (kbbl/d) | 860 | 890 | ||||
| 69 | Italy | 66 | 61 | |||||
| 85 | Rest of Europe | 89 | 89 | |||||
| 290 | North Africa | 248 | 244 | |||||
| 258 | Sub-Saharan Africa | 256 | 260 | |||||
| 57 | Kazakhstan | 57 | 67 | |||||
| 148 | Rest of Asia | 50 | 81 | |||||
| 87 | America | 87 | 86 | |||||
| 4 | Australia and Oceania | 7 | 2 | |||||
PRODUCTION OF NATURAL GAS BY REGION
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | ||||
| 4,868 | Production of natural gas (a) (b) | (mmcf/d) | 4,596 | 4,718 | ||||
| 550 | Italy | 548 | 511 | |||||
| 586 | Rest of Europe | 534 | 548 | |||||
| 2,161 | North Africa | 2,135 | 2,032 | |||||
| 470 | Sub-Saharan Africa | 471 | 453 | |||||
| 235 | Kazakhstan | 235 | 279 | |||||
| 290 | Rest of Asia | 327 | 278 | |||||
| 462 | America | 226 | 502 | |||||
| 114 | Australia and Oceania | 120 | 115 | |||||
(a) Includes Eni’s share of production of
equity-accounted entities.
(b) Includes volumes of gas consumed in operation (428 and 398
mmcf/d in the first quarter 2016 and 2015, respectively and 407
mmcf/d in the fourth quarter 2015).
- 35 -
Table of Contents
Gas & Power
Natural gas sales by market
| (bcm) |
| Fourth Quarter 2015 | First Quarter 2015 | First Quarter 2016 | % Ch. | |||||
| 9.51 | ITALY | 10.53 | 10.79 | 2.5 | ||||
| 1.36 | - Wholesalers | 1.72 | 1.61 | (6.4 | ) | |||
| 3.45 | - Italian exchange for gas and spot markets | 2.75 | 3.55 | 29.1 | ||||
| 1.04 | - Industries | 1.36 | 1.14 | (16.2 | ) | |||
| 0.43 | - Medium-sized enterprises and services | 0.55 | 0.66 | 20.0 | ||||
| 0.16 | - Power generation | 0.26 | 0.21 | (19.2 | ) | |||
| 1.52 | - Residential | 2.35 | 2.09 | (11.1 | ) | |||
| 1.55 | - Own consumption | 1.54 | 1.53 | (0.6 | ) | |||
| 12.87 | INTERNATIONAL SALES | 15.09 | 13.31 | (11.8 | ) | |||
| 10.36 | Rest of Europe | 12.97 | 11.30 | (12.9 | ) | |||
| 1.17 | - Importers in Italy | 1.13 | 1.13 | |||||
| 9.19 | - European markets | 11.84 | 10.17 | (14.1 | ) | |||
| 1.55 | Iberian Peninsula | 1.14 | 1.38 | 21.1 | ||||
| 0.96 | Germany/Austria | 1.61 | 1.37 | (14.9 | ) | |||
| 1.74 | Benelux | 2.84 | 2.13 | (25.0 | ) | |||
| 0.57 | Hungary | 0.72 | 0.73 | 1.4 | ||||
| 0.43 | UK | 0.72 | 0.37 | (48.6 | ) | |||
| 2.06 | Turkey | 2.07 | 1.59 | (23.2 | ) | |||
| 1.73 | France | 2.53 | 2.23 | (11.9 | ) | |||
| 0.15 | Other | 0.21 | 0.37 | 76.2 | ||||
| 1.66 | Extra European markets | 1.34 | 1.20 | (10.4 | ) | |||
| 0.85 | E&P sales in Europe and in the Gulf of Mexico | 0.78 | 0.81 | 3.8 | ||||
| 22.38 | WORLDWIDE GAS SALES | 25.62 | 24.10 | (5.9 | ) | |||
- 36 -