Eni to take up $4 billion impairment hit due to lower oil price outlook

Italian oil major Eni is expecting to report impairments of around 3.5 billion euros (cca. $3.96 billion) as a result of a lower outlook for energy prices.

Eni said on Monday that it was cutting its forecasts for oil and gas prices, both in the short and long term.

The company is assuming that the long-term price for Brent would stand at a long-term price $60 a barrel from 2023 onwards, down from a previous forecast of $70.

For the years 2020-2022, Brent prices are expected respectively at $40, 48, and 55 per barrel, compared to the previous assumptions of $45, 55, and 70 per barrel

Eni added that it was still working on its assessment of the impairments and that the estimate might vary by around 20 per cent, up or down.

Of the pre-tax impairment charges estimated at $3.16 billion, the Italian firm expects write-downs of about $2.26 billion related to its upstream assets and around $900 million in its refining operations. The estimate also includes devaluation of tax credits of around $790 million.

The amount of the estimated impairment losses are expected to be recorded in Eni’s consolidated results for the second-quarter 2020 due to be released on 30 July 2020.

Eni added on Monday that the market developments linked to the spread of the COVID-19 pandemic made the robustness of the company’s strategic path and its long-term choices even more compelling.

Namely, the distinctive element of this strategy is the fixed 2050 absolute emissions reduction target of 80 per cent covering all of the company’s products.

This is well above the 70 per cent threshold indicated by the IEA in the Sustainable Development Scenario that tracks the reduction of emissions compatible with the Paris Agreement.

Claudio Descalzi, Eni’s CEO, said: “We confirm our strategy to become a leader in the decarbonization process, notwithstanding the enduring impacts of the COVID-19 pandemic on the global economy and the company.

“We are assessing how to speed up our plans. This ongoing evolution will allow the company to achieve a better-balanced portfolio, reducing the exposure to the volatility of hydrocarbon prices, while progressing towards our targets of sustainability and profitability.

“Our changed long-term assumptions reached four months after the outbreak of the COVID-19 pandemic, reflect our current expectations about future prices and will be incorporated in our processes of capital allocation”.

Eni is not the first major company to announce such an impairment hit. Namely, BP is also expecting massive reductions to asset values during the second quarter of 2020 as a result of the combined hit of the oil price plunge and the COVID-19 pandemic.

According to BP, non-cash impairment charges and write-offs in the second quarter are estimated to be in an aggregate range of $13 billion to $17.5 billion post-tax.