Set on diversifying energy sources’ geographic mix, Eni joins peers in posting bumper profits in 2022

Italy’s energy giant Eni has more than doubled its annual profit in 2022, driven by elevated oil and gas prices and higher energy demand, especially in Europe, where the oil major contributed to strengthening energy security amid the gas crunch due to the Ukraine crisis. In addition, the Italian player has unveiled a strategic plan forward, which puts the diversification of energy sources’ geographic mix at its core.

The energy woes that came with the Ukraine crisis in 2022, as governments and companies embarked on a distancing mission from Russian oil and gas, brought to life the global energy crisis, which led to tight supply and price volatility. This enabled oil and gas companies to rake in record-high profits, as illustrated by the quarterly and annual results provided by Eni’s rivals: Equinor, TotalEnergies, BP, Shell, Chevron and ExxonMobil.

Claudio Descalzi, Eni CEO, remarked: “In 2022, Eni was not only engaged in progressing its sustainable energy transition goals, but also in ensuring the security and stability of energy supplies to Italy and Europe, building up a diversified geographic mix of energy sources. The company delivered excellent financial and operating results while contributing to the stability of energy supplies to Italy and Europe and progressing its decarbonisation plans.

“During the year, we were able to finalise agreements and activities to fully replace Russian gas by 2025, leveraging our strong relationships with producing states and fast-track development approach to ramp-up volumes from Algeria, Egypt, Mozambique, Congo and Qatar.”

Eni reported on Thursday, 23 February 2023, that its adjusted operating profit for the full-year 2022 was €20.4 billion (around $21.6 billion), double the amount of €9.66 billion (about $10.24 billion) for the full-year 2021, driven by a strong performance of the E&P, GGP and R&M businesses. This is illustrated by the E&P, which with €16.4 billion (approximately $17.4 billion) of earnings before interest and taxes (EBIT), was up more than 70 per cent year-on-year due to its capacity to capture the upside of a favourable commodity environment.

In line with this, GGP earned €2.1 billion (circa $2.23 billion) of EBIT, replacing Russian flows with equity gas or supplies from countries where Eni operates, ensuring optimisation of the gas and LNG portfolio in a tight market while ensuring stable and secure supplies to its customers and managing financial risks.

“The recently signed deal with Libya’s NOC on the A&E Structures development and exploration successes off Cyprus, Egypt and Norway will further strengthen our integrated supply diversification. This prompt reaction to the gas crisis and the integration with the E&P activities were important driver of the performance of our GGP business, which was able to ensure its supply commitments through different sources,” highlighted Descalzi.

On the other hand, Eni says R&M achieved its best performance ever with €2.2 billion (over $3.3 billion), compared to breakeven in 2021, due to plant availability and output optimisation allowing to capture the upside of a strong refining environment, and efficiency measures to address the rise in plant utility expenses.

Eni’s Plenitude delivered against its operating and financial targets with EBIT of €0.34 billion and a renewable capacity of 2.2 GW, despite the challenging market scenario while Versalis was impacted by competitive pressures, weakening demand and higher gas-indexed utility expenses, driving a loss of €0.25 billion.

“Plenitude reached a renewable capacity of 2.2 GW, doubling last year level, and together with our newly established Eni Sustainable Mobility will continue to progress our plans to zeroing customers’ emissions. This new entity, leveraging our strong biofuels footprint will offer increasingly decarbonised mobility solutions to customers in Italy and Europe,” added Descalzi.

The firm’s adjusted operating profit was €3.6 billion (over $3.8 billion) for the fourth quarter of 2022, down by €0.2 billion from €3.8 billion (more than $4 billion) in 4Q 2021, owing to the reclassification of Azule Energy into associates, lower hydrocarbons production and GGP one-off gains in 2021, partly offset by a strong performance of the R&M business.

The company’s adjusted net profit attributable to its shareholders was €13.3 billion (nearly $14.1 billion) for the full-year 2022, compared with €4.3 billion (almost $4.6 billion) during the full-year 2021, thus, it was €9 billion (over $9.5 billion) higher due to a strong operating performance and higher results of equity-accounted entities.

The oil major’s adjusted net profit attributable to its shareholders was €2.5 billion (nearly $2.7 billion) in 4Q 2022 and almost 50 per cent higher compared with €1.7 billion (about $1.8 billion) in 4Q 2021, up by €0.8 billion due to higher results of equity-accounted entities partly as a result of the Azule JV, more than offsetting a lower operating profit.

Furthermore, the Italian giant’s net profit attributable to its shareholders was €13.8 billion (more than $14.6 billion) for the full-year 2022, compared with €5.8 billion (about $6.15 billion) for the full-year 2021, driven by an improved underlying performance partly offset by lower net special gains mainly due to inventory evaluation.

The oil and gas player’s net profit attributable to its shareholders was €550 million (approximately $583 million) in the fourth quarter of 2022, compared to €3.52 billion (over $3.7 billion) in 4Q 2021, as it was reduced by fair-valued commodity derivatives of €1.1 billion (compared to a gain of €1.7 billion in the previous year), asset impairments of €0.9 billion (compared to reversals of €0.5 billion in the previous year) and extraordinary solidarity tax contributions of €0.7 billion, partly offset by deferred taxes of €1.6 billion.

“While market conditions were clearly supportive, our 2022 financial results were underpinned by capital and cost discipline, operating performance and by effective risk management of price volatility and supply tightness,” underlined Descalzi.

Eni listed special charges, largely related to environmental and remediation provision, of €2 billion (around $2.12 billion) in 2022, including €0.3 billion decommissioning provision for refinery, impairment charges of €1.1 billion for oil and gas assets and chemicals plants, and windfall taxes on energy profits totalling €1.7 billion (over $1.8 billion), of which €1 billion was paid in 2022. These charges were offset by gains of €2.5 billion (almost $2.7 billion) on the Azule transaction and of €0.4 billion on the divestment of an interest in the Vår Energi associate and by deferred taxes of €1.6 billion.

Moreover, the Italian player’s adjusted operating cash flow before working capital at replacement cost was €4.1 billion (nearly $4.4 billion) in 4Q 2022, compared to €4.6 billion (almost $4.9 billion) in 4Q 2021. However, it reached €20.4 billion (about $21.65 billion) for the full-year 2022, net of €8.5 billion (more than $9 billion) of cash taxes, up 60 per cent year-on-year from €12.7 billion (about $13.5 billion) in 2021.

After funding organic capex of €8.2 billion (around $8.7 billion), up 42 per cent year-on-year due to a stronger U.S. dollar, planned post-lockdown activity, and covering working capital needs, Eni delivered an organic FCF of €12.8 billion (nearly $13.6 billion) to cover portfolio activities, reduce net borrowing by €2 billion (over $2 billion) and return €5.4 billion (more than $5.7 billion) of cash to shareholders via dividends and share repurchases.

Eni’s net borrowings (ex-IFRS 16) were €7 billion (over $7.4 billion) as of 31 December 2022, down by €2 billion compared to nearly €9 billion (about $9.55 billion) at 31 December 2021.

“Our strategic objectives are unchanged: we will invest to ensure stable and affordable supplies to meet energy market demand and decarbonise our operations and clients, while maintaining financial discipline to ensure attractive returns for our shareholders,” outlined Descalzi.

The Italian energy giant added around 750 mln boe of new resources to the reserve base during 2022 and several discoveries were made close to existing assets and facilities, as part of its fast-track development model in Algeria, Egypt and Abu Dhabi. Additionally, the firm pointed out that important reserve additions were made with the appraisal wells of the offshore Ndungu oilfield in Angola and the offshore Baleine oilfield in the Ivory Coast, allowing the company to significantly raise the estimated hydrocarbons in place in both cases.

The XF-002 in the UAE and the Cronos off Cyprus gas discoveries also significantly contributed to the year’s results. The later success of Zeus in Cyprus – still in evaluation at the end of the year – and Nargis in Egypt in January 2023 further confirmed the potential of the East Mediterranean area. The production for the year was 1.610 mln boe/d, down by 4 per cent due to unplanned outages and force majeure.

When it comes to Eni’s activities during 4Q 2022, the firm underscored that the first loading of liquefied natural gas (LNG) produced from the Coral gas field, in the ultra-deep waters of the Rovuma Basin in Mozambique, was shipped in November 2022 from the Coral Sul floating liquefied natural gas (FLNG) facility, marking “a milestone in the worldwide LNG business thanks to our ability to deliver the project on time and on budget notwithstanding the pandemic disruptions, while launching the country as a new relevant LNG hub.”

As part of the Congo LNG project to exploit Eni’s gas reserves in block Marine XII and support the security of gas supplies to Europe, a turn-key contract was signed the following month to build, install and commission an FLNG vessel with a capacity of 2.4 mln tonnes/year, which will pair the Tango FLNG vessel purchased earlier to speed up the firm’s development plans. LNG production is expected to reach a plateau capacity of 3 mln tonnes/year in 2025.

Last December proved to be a busy month for Eni, as it also closed the acquisition of a 3 per cent interest in the giant North Field East (NFE) LNG project in Qatar and signed an agreement with Snam to jointly develop and manage the Ravenna carbon capture and storage (CCS) project, which is intended to gather data to support the planned construction of a large CCS hub, leveraging Eni’s depleted offshore reservoirs in the area.

Phase 1 of this project is ongoing and from 2024 is expected to begin capturing 25 ktons of CO₂ emitted from Eni’s natural gas treatment plant in Casalborsetti (Ravenna), to be subsequently transported and injected into a nearby depleted gas field. By 2027, Phase 2 will start the industrial scale-up with a storage injection of up to 4 mln tons.

Come January 2023, the Italian giant inked an agreement with the National Oil Corporation of Libya (NOC) for the development of the large gas reserves of A&E Structures, offshore Tripoli. The production, slated to start in 2026, is expected to reach a plateau of 750 mmscf/d, with volumes destined both to the domestic market and to Europe via the existing Greenstream offshore pipeline leveraging synergies with the Mellitah Complex. The project comprises the construction of an onshore CCS hub.

In addition, a 30 per cent interest in offshore exploration Blocks 4 and 9, in Lebanon, operated by TotalEnergies, was farmed out to QatarEnergy with Eni retaining a 35 per cent interest in the venture. During the same month, the oil major also signed strategic agreements with Sonatrach, reaffirming the common objective of strengthening energy security and accelerating the transition to a low-carbon economy.

Therefore, the two players have agreed on identifying and pursuing joint opportunities for the reduction of greenhouse gas emissions through energy efficiency initiatives, renewables development, green hydrogen projects and carbon dioxide capture and storage projects, to support energy security and a sustainable energy transition, including the evaluation of possible measures to improve Algeria’s energy export capacity to Europe.

Meanwhile, the Italian giant has issued its financial and operating targets for 2023 and its strategic plan for 2023-2026, which focuses on energy security and affordability through geographical and technological diversification; emissions reduction; leveraging technology for today and for breakthrough opportunities; and delivering value for its shareholders.

“The plan presented today confirms the strength and effectiveness of our strategy. In 2014 we undertook an industrial and financial transformation path which progressively enabled us to create value even in difficult scenarios, delivering security of supplies and environmental sustainability. We have been focussing our exploration and production strategy mainly on gas, leveraging our own production and diversifying our investments across different countries. This has enabled us to put in place our plan aimed at replacing 20 billion cubic meters of Russian gas by 2025,” explained Descalzi.

As elaborated by Eni, the firm’s strategy aims to meet each of the essential pillars of the energy trilemma, achieving environmental sustainability side-by-side with energy security and affordability, which means geographical and technological diversification of energy sources, creating a different energy mix while also maintaining a strong focus on value creation for shareholders.

The company confirmed Scope 1, 2 and 3 emissions reduction targets versus 2018 of 35 per cent by 2030; 80 per cent by 2040; and net-zero by 2050. In lieu of this, upstream net-zero Scope 1 and 2 targets are anticipated to be reached by 2030. Eni’s upstream production is expected to grow by a 3-4 per cent CAGR through 2026, then plateau by 2030 while the gas share of production will rise to 60 per cent by 2030.

In light of this, Eni says it is securing gas supplies for its customers via “a more diversified, flexible and integrated portfolio,” expecting to grow contracted LNG to over 18 MTPA by 2026, double that of 2022. The firm expects Plenitude’s renewable generating capacity to grow to over 7 GW by 2026 and over 15 GW by 2030.

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“Today we can clearly outline how the company will be in 2030: our Upstream operations will no longer produce net emissions; our hydrocarbon production will be composed mainly by gas; our biofuel capacity will exceed 5 million tonnes per year; our renewable energy capacity will be more than 15 GW. And our investments in the most revolutionary technology linked to the energy transition – the magnetic confinement fusion – will be about to result in the first industrial plant,” outlined Descalzi.

During this strategic plan, Eni intends to approve a number of FIDs, including the A/E Structures in Libya, Hail & Ghasha and expansions of Lower Zakum in the UAE, plus Ivory Coast, Kazakhstan, Angola and possible new activities in the Eastern Mediterranean. At the same time, Eni plans start-ups in 2023 of the first phases of Baleine in Ivory Coast and Congo LNG, along with start-ups in Egypt, UAE and Norway and the continuing development programme in Algeria. In 2024, start-ups are planned in Italy, Egypt, Ivory Coast Phase 2, Kazakhstan and Norway.

The Italian player intends to generate CFFO before working capital of over €17 billion (over $18 billion) in 2023 and over €69 billion (nearly $73.2 billion) over the course of this plan, a 25 per cent increase in 2026 versus 2023 in a constant 2023 scenario. This organically funds investment and enhanced shareholder distributions while maintaining leverage in a 10-20 per cent range, says Eni. 

“Finally, we have deeply strengthened the company from a financial point of view through optimisation and rationalisation of expenditures, and this allows us today to present our strong financial goals: a significant CFFO generated both from our traditional activities and with the contribution of transition-related businesses; a satellite business model which allows us to enhance the value of our businesses while freeing up additional resources for investment in transition; and a very low debt level,” concluded Descalzi.

Eni will invest €2.1 billion (about $2.23 billion) over the next four-year period, targeting 2.2 billion barrels of oil equivalent at around $1.50/boe of exploration cost, with 60 per cent of discoveries anticipated to be gas.