Sharp fall in gas prices brings Eni slump in profit

With natural gas prices being nearly cut in half, Italy’s energy giant Eni has seen a 46% drop in net profit in the first quarter of 2024 compared to the sum collected in the same period last year. However, the oil major still recorded strong financial and operating results, fueled by production growth due to recent acquisitions and an output boost from existing projects.

The downturn in oil and gas prices is not a new theme, as this trend was present last year after energy prices tumbled down from the sky-high levels observed during 2022. Eni’s adjusted net profit before taxes was €3.13 billion in 1Q 2024, compared to €3.19 billion in 4Q 2023 and €4.98 billion in 1Q 2023, representing a 37% fall.

The company’s adjusted net profit was €1.58 billion in 1Q 2024, compared to €1.66 billion in 4Q 2023 and €2.91 billion in 1Q 2023, marked by a trading environment that featured a decline in natural gas prices, which were down almost 50% y-o-y at the main European hubs, affecting the results of the Italian firm’s gas value chain, while crude oil prices were nearly flat with the Brent benchmark averaging $83 per bbl.

Based on the company’s results, proforma adjusted EBIT for 1Q 2024 was €4.12 billion, compared to €3.76 billion in 4Q 2023 and €5.87 billion in 1Q 2023, representing a drop of 30%. The Italian player’s E&P segment earned €3.32 billion of proforma adjusted EBIT in 1Q 2024, driven by production growth of 5% y-o-y to 1.74 mln boe/d, thanks to continuing project ramp-ups and the Neptune Energy business acquisition. The firm is adamant that this growth added to the focus on efficiency and yielded resilient outcomes, down just by 13% versus last year, despite the impact of lower natural gas price realizations.

Furthermore, GGP proforma adjusted EBIT was €0.33 billion in 1Q 2024 in line with management’s expectations anticipating lower trading opportunities due to reduced prices and volatility versus last year. On the other hand, Enilive and Plenitude delivered €0.42 billion of proforma adjusted EBIT, up by almost 60% from the 1Q 2023.

While Eni’s Enilive earned €0.18 billion, up by 30%, driven by higher biorefinery throughputs and positive marketing performance, Plenitude earned €0.24 billion, 80% above last year, driven by higher retail commodity margins, supported by lower scenario volatility and the improved performance in international retail markets, as well as the ramp-up in renewable installed capacity and related production volumes.

The Italian oil major explains that Enilive’s proforma adjusted EBITDA in 1Q 2024 was €0.25 billion, up by 27% and Plenitude’s proforma adjusted EBITDA was €0.35 billion, up by approximately 50%. Eni’s adjusted operating cash flow before working capital at replacement cost was €3.9 billion in 1Q 2024, exceeding outflows related to organic capex of €2 billion and resulting in an organic free cash flow (FCF) of €1.9 billion.

In addition to funding working capital requirements of around €2 billion, the organic FCF was deployed to return cash to shareholders through dividends and share repurchases of €1.2 billion overall as well as to fund the acquisition of the Neptune Energy Group with €2.3 billion and of renewable capacity in the U.S. of €0.2 billion, partly offset with the proceeds from the sale of a minority stake of 7.6% in Plenitude to the EIP fund of about €0.6 billion and non-strategic E&P assets of €0.2 billion.

Claudio Descalzi, Eni’s CEO, commented: “In the first quarter 2024, we have accelerated in executing the transformation of our portfolio through different high value platforms of growth in both the legacy and transition businesses. With the closing of the acquisition of Neptune Energy and the announced UK focused combination with Ithaca Energy in the Upstream, we will reinforce our exposure to gas and to OECD countries, while the EIP investment into Plenitude at an enterprise value in excess of €10 bln confirms the material potential of our renewable and retail segment.”

Moreover, Eni’s hydrocarbons production rose by 5% to 1.74 million boe/d in 1Q 2024, thanks to the purchase of Neptune Energy, including those properties acquired by Vår Energi in Norway, and ramp-ups at the Baleine project in Côte d’Ivoire and Mozambique. The firm’s exploration activities during the quarter delivered 435 million boe of new additions to the resource base, driven by the Calao discovery in the CI-205 block off Côte d’Ivoire and the positive appraisal of the Cronos discovery in the operated Block 6 off Cyprus.

In addition, just one year after the FID, the Congo FLNG project started its deliveries of LNG to international markets in February 2024, enabling the Republic of Congo to join the exporter club in the global landscape of this low-carbon fuel. Eni wrapped up the divestment of its participating interests in several production permits in Congo in March 2024.

Descalzi highlighted: “Operationally, we continue to leverage our exploration and development skills: a new giant discovery in Côte d’Ivoire will expand our optionality in the long term both in term of resources and potential dilution; fast tracking development has ensured the start-up of the first LNG in Congo, just one year after the final investment decision. The quarterly performance was excellent, with a strong result from E&P, supported by production up 5% versus last year, and continuing growth at Plenitude and Enilive.”

The Italian giant made inroads in stepping up its decarbonization game during 1Q 2024, as confirmed by the authorization, received through a development consent order (DCO), from the UK government’s Department for Energy Security and Net Zero (DESNZ) to build, operate and maintain the HyNet North West CO2 pipeline to transport captured CO2 as part of the HyNet CCS cluster.

Eni also renewed its membership participation in the MIT Energy Initiative (MITEI) in March 2024 as a founding member until the end of 2027, furthering its commitment to the field of low-carbon energy research. The company claims that this agreement demonstrates its commitment to innovation and research as core drivers behind its short, medium, and long-term decarbonization goals.

“The results put the company firmly on track to exceed the full-year earnings and cash flow guidance as we work to efficiently grow the upstream, profitably develop the businesses tied to the energy transition, and work to fully capture the market scenario. Based on our updated scenario, we expect full year CFFO to be above €14 bln and, in line with our distribution commitment, we are raising the planned 2024 share buy-back by 45% to €1.6 bln,” emphasized Descalzi.

The Italian player’s updated operational and financial guidance for 2024 confirms full-year hydrocarbon production for the E&P segment in a range of 1.69 – 1.71 million boe/d at the revised Brent price of $86/bbl while €0.8 billion of proforma adjusted EBIT is confirmed for GGP.

Regarding Enilive and Plenitude, proforma adjusted EBITDA is expected to be €1 billion for each business for the full year, with installed capacity from renewable sources projected at 4 GW at the end of 2024, with an additional 2 GW of organic projects under construction.

In the revised scenario, Eni’s expected proforma adjusted EBIT and CFFO before working capital are both raised above €14 billion for the full year while organic capex is estimated at €9 billion, with capex net of proceeds from disposal reaffirmed in a range of €7 – 8 billion.

The company underlines that its 2024 share buy-back is now expected to be €1.6 billion, a 45% increase versus the €1.1 billion guidance provided in March. This remains subject to shareholder approval at the Annual General Meeting on May 15, 2024, for a proposed buy-back of up to €3.5 billion and a dividend of €1 per share for fiscal year 2024, representing a 6% increase over 2023, to be paid in four installments, starting in September 2024.