Italian oil and gas giant Eni went from a profit in the second quarter of 2019 to a loss in the same period this year hit by the combined effects of the coronavirus pandemic and the oil price crisis. Eni has also cut its capex guidance for 2020 by 35 per cent.
Eni booked a net loss of €4.4 billion ($5.2 billion) in the second quarter of 2020 and €7.34 billion ($8.6 billion) in the first half 2020, compared to a profit of €424 million ($497.1 million) in the same period last year.
This was due to the recognition of pre-tax impairment losses at non-current assets for €3.4 billion (of which €2.8 billion in the second quarter) mainly relating to oil&gas assets and refinery plants, due to a revised outlook for oil and natural gas prices and product margins, equaling to a post-tax amount of €3.6 billion that includes the write-off of deferred tax assets (of which €3.5 billion booked in the second quarter).
Net result was also affected by a post-tax loss on stock of €1 billion due to the alignment of the book value of inventories to current market prices.
The Italian company said that its quarterly results were negatively and materially affected by the combined impact of the ongoing economic recession due to the COVID-19 effects on production, international commerce and travel, with a major impact on energy demand, and by oil and gas oversupplies.
Output down
Hydrocarbon production was 1.71 million boe/d in the second quarter 2020, down by 6.6% compared to the second quarter of 2019 (1.74 million boe/d in the first half, down by 5.1%).
Net of price effects, the decline was due to COVID-19 effects and related OPEC+ production cuts as well as lower gas demand, mainly in Egypt.
The positive performance reported in Nigeria, Kazakhstan and Mexico and the additions due to the purchase of mineral interests in 2019 in Norway, more than offset the lower volumes in Libya driven by an anticipated contractual trigger, geopolitical instability and lower entitlements/spending.
Rebound in 2021
Following positive trends recorded in the oil market in June and July, Eni is assuming a gradual recovery in global consumption of hydrocarbons and power in the second half of the year, particularly in Eni’s reference markets. Eni expects a rebound in energy demand in 2021.
Having considered the prospect of the pandemic having an enduring impact on the global economy and the energy scenario, management revised the company’s outlook for crude oil prices, reducing the long-term price of the marker Brent to 60 $/barrel in 2023 real terms compared to the previous assumption of 70 $/barrel.
For the years 2021-2022, Brent prices are expected at 48 and 55 $/barrel respectively (compared to the previous assumptions of 55 and 70 $/barrel). Spot gas prices at the Italian hub have been reduced by 30% in the long-term, while refining margins are expected to decline in the short term.
Capex cuts
Eni’s review of the industrial plan and the group strategy in the short-medium term foresees capex cuts of approximately €2.6 billion for 2020, approximately 35% lower than the initial capital budget; the new capex guidance for 2020 is €5.2 billion.
Anticipated reductions of €2.4 billion in 2021, i.e. 30% lower than original plans. Capex revisions almost fully focused in the E&P segment.
Eni also expected production of 1.71–1.76 mboe/d in 2020 including OPEC+ cuts, in line with the earlier guidance, due to capex curtailments in response to the COVID-19 crisis, a lower global gas demand also impacted by the pandemic effects and finally extension of force majeure in Libya for the FY 2020.