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Executives

Alessandro Bernini – Chief Financial Officer, Financial Reporting Officer

Claudio Descalzi – Chief Operating Officer, Exploration & Production

Domenico Dispenza – Chief Operating Officer, Gas & Power

Paolo Scaroni – Chief Executive Officer, General Manager and Executive Director

Analysts

Alejandro Demichelis – Bank of America/Merrill Lynch

Nitin Sharma – JPMorgan

John Reade – UBS

Theepan Jothilingam – Nomura International

Lucy Haskins – Barclays Capital

Oswald Clint – Sanford C. Bernstein

ENI S.p.A. (E) Q3 2011 Earnings Call October 27, 2011 10:00 AM ET

Operator

Good afternoon, ladies and gentlemen, and welcome to Eni’s 2011 Third Quarter Results Conference Call hosted by Alessandro Bernini, Chief Financial Officer. For the duration of the call, you will be in listen-only mode. However, at the end of the call, you have the opportunity to ask questions.

I am now handing you over to your host to begin today's conference call. Thank you.

Alessandro Bernini

Good afternoon, ladies and gentlemen, and welcome to our third quarter results conference call. The third quarter of ’11 was characterized by a significant progress on our strategic goals. In particular, the situation in Libya is evolving positively. Abu-Attifel oil field was re-started and we have re-opened the GreenStream pipeline on October 13. Our initial volumes are small, but we expected to run this after over the next two months and into the first quarter of ’12 along with the re-start of the large Bahr-Essalam offshore gas fields expected before year-end.

Overall the recovery of our activities in Libya have enable us to slightly reduce our estimates for the negative impact of the crisis on full year production. We have also continued to deliver excellent exploration results of which our recent discovery in Mozambique is the standout example both in terms of size and because it opens up a new frontier for us East Africa. We have made good progress on our development projects in particular taken the FID for the Samburskoye field in the Yamal Peninsula putting us on track for start up in ’12.

Just to give you an update on gas renegotiations, our discussion with Sonatrach have been positive and we are close to reaching a mutually satisfactory conclusion. Our discussion, we guess, are progressing and we had seen evidence of an increasingly constructive value. While it is difficult to be deterministic about the timing of the deal, we remain confidence about the outcome. But now, let me give you a detailed overview of our Q3 results.

In the third quarter of ’11, the macro environment was mainly positive. The brand price averaged $113 a barrel, up 48%, compared to the third quarter of ’10. Meanwhile, the average European refining margin Brent/Ural was $249 per barrel, still weak compared to historical levels, but showing an 18% increase year-over-year. The euro-dollar exchange rate move unfavorably compared to the corresponding period of last year with the euro appreciating around 10% versus the dollar.

Moving to our results, adjusted operating profit in the third quarter amounted to €4.6 billion, up 12% year-on-year. This result is due to the improved performances of the Exploration and Production, Engineering and Construction, and the Refining and Marketing business, partially offset by the lower contribution of the gas and power division, which doesn't reflect any benefits from gas contract renegotiations and the negative result of the petrochemical businesses.

Adjusted net profit for the third quarter was €1.8 billion, up 7% year-on-year. Not withstanding a higher adjusted tax rate up by almost 7 percentage point to 57.6%. The recent upward revision of the so-called Robin Tax, decrease in net profit by €130 million in the third quarter of which €80 million pertaining to the first half of ’11.

In the third quarter of ’11, Eni’s hydrocarbon production amounted to 1,473,000 barrels of oil equivalent per day, a decrease of about 14% compared to Q3 ’10. The over production was mainly due to the ongoing instability in Libya, which reduced the production by approximately 200,000 BOE per day.

Furthermore, PSA entitlements were negatively affected by the sharp increase in the oil price with an estimated impact of 37,000 BOE per day. The increase in the oil price however, boosted the division’s adjusted operating profit, which amounted to over €3.9 billion, up 19% compared to the third quarter of last year. This positive results comes in spite of the negative impact of the U.S. dollar depreciation amounted to around €200 million in the quarter.

In Gas and Power, overall gas volumes sold including consolidated and associated companies totaled 17.3 bcm roughly align with last year. However, adjusted operating profit decreased by 20% compared to the same period of ’10 due to the sharply lower results delivered by the marketing business. It’s worth reminding you that the results do not include any benefits from the renegotiation of our long-term supply concepts, although, this will be retroactive once the agreements are finalized.

Gas and Power adjusted pro forma EBITDA for the third quarter of ’11 was €550 million, compared to €675 million in the third quarter of last year. International transportation results showed a 4% decrease while the regulated businesses generated €388 million, up 5% versus the corresponding period of last year. The increase is mainly due to higher returns of new investments and efficiency actions, as well as the positive impact on the distribution business on the new tariff regime set by the Authority for Electricity and Gas.

Adjusted pro forma EBITDA in the marketing and power business was negatively impacted by increasing competitive pressure in Italy and Europe, as well as unfavorable climate and scenario affects. Furthermore, the ongoing situation in Libya reduced volumes to shippers and the affected margins owing to the substitution of recently renegotiated Libyan gas with other sources of supply not yet renegotiated. These negative were partially offset by the positive outcome of this gas renegotiation of a long-term supply contract with the Netherlands.

Turning now to R&M. In the third quarter of ’11 the division reported an adjusted operating profit of €26 million versus €14 million in the same period of last year. The refining business has slightly improvement the results due to a better ratio of prices of the main distillates to the cost of the crude feedstock and the widening spreads of gasoline and gasoil compared to fuel oil. These positives were partly offset by rising oil-linked costs for plant utilities.

Marketing activities posted a positive result, although lower than in Q3 ’10. Due to decline in fuel consumption, a different mix of volumes sold and increased expenses related to promotional initiatives.

In the third quarter of ’11, the petrochemical business reported an adjusted operating loss of €80 million compared to a profit of €31 million in the third quarter of last year. The result was negatively impacted by falling product margins, with the cracker margin severely hit by higher supply costs of oil-based feedstock, which were not fully recovered in sales prices on end markets, as well as a substantial decrease in demand.

Slide 10 delivers adjusted operating profit of €333 million up 5% versus Q3 ’10, mainly driven by higher results in onshore construction and offshore drilling operations. Other activities and corporate showed an aggregate loss of €146 million compared to a loss of €93 million reported in the third quarter of ’10.

Cash flow from operation was €11.2 billion in the first nine months of ’11. Proceeds from divestments amounted to €334 million including small non-strategic upstream assets ended the sale 10:27 of gas distribution activities in Brazil. The cash inflows were used to partially fund the cash outflows relating to capital expenditure of €9.5 billion and dividend payments of €4.1 billion, which included the payment of the interim dividend of ’11 made in the last week of September.

Net financial debt as at the end of September amounted to €28.3 billion, and a ratio of net borrowing to total equity stood at 0.49. The net debt at the end of the September doesn’t include the cashing from the announced disposal of the international pipelines nor the investments for the acquisition of Nuon Energy and an additional stake in Elgin-Franklin, which we expect by year-end. Assuming an average Brent price of $111 per barrel for the full year ’11 and the benefit associated with the ongoing renegotiation of gas supply contracts the debt-to-equity ratio expected at the end of ’11 will be lower than in 2010.

Thank you for your attention and now together with Claudio Descalzi and Domenico Dispenza, I would be happy to answer any question you may have.

Question-and-Answer Session

Operator

(Operator Instructions) First question comes from Mr. Alejandro Demichelis, BofA Merrill Lynch. Mr. Demichelis, please.

Alejandro Demichelis – Bank of America/Merrill Lynch

Yes, good afternoon, gentlemen. The first question is on the Mamba South discovery, may be you can talk to us, how do you see that going forward and also in terms of size of Mamba North, should we assume that is going to be offer similar size? And then as a follow-up, may be you can tell us, what you are thinking in terms of how do you think about unitization and potential development of these fields?

Alessandro Bernini

Okay, Mamba. We plan to drill additional four wells, as we said, the next one will be Mamba North. Within the Mamba North, we will not have the same dimension of Mamba South. Mamba South is a big discovery and more than what we expected, but we think that by the end of 2012, we can increase these resources. I cannot talk now about unitization because we didn’t talk to Anadarko, yet. Well, I think that’s a part of the field up in the (inaudible) part of the structure are not electing Anadarko block. So it’s not the case for all the blocks.

Alejandro Demichelis – Bank of America/Merrill Lynch

You mean, the deep well discovery does not overlap with Anadarko or do you think that the Appa sound does not overall?

Alessandro Bernini

No, when we talk about, we talk about in general, I think the unitization as you know is a very sensitive issue and I don’t think that is very wise to talk and disclose anything about in recent before talking with (inaudible), with the government, so I prefer don’t talk about unitization now (inaudible).

Alejandro Demichelis – Bank of America/Merrill Lynch

Okay that’s great. Thank you.

Operator

Next question is from Mr. Nitin Sharma from JPMorgan. Please proceed with your question, sir.

Nitin Sharma – JPMorgan

Hi, good afternoon, two questions for you if I may. First one; on gas marketing business, this is the second consecutive quarter that you’ve reported operating loss for this business, and the reason clearly is the ongoing negotiations with Gazprom and Sonatrach. Could you please quantify what sort of financial impact culmination, do you think appreciation for (inaudible), and if possible a timeframe I know you’ve guided towards an early resolution, but would that mean by end of Q4. And the second one, is in relation to the guidance that you’ve given on production year-on-year, 10% decline, now that guidance is based on additional volumes from redemption in Libya. My question is what level of production are you assuming in Q4 from Libya, thanks.

Paolo Scaroni

Well, Paolo Scaroni, where applied to be demands last one, because the growth of the financing more contract, supply contract we close I must say in a guided (inaudible) meeting several compliment kind of second quarter. What will remain for still to be a (inaudible) contact, this would be some of our contract, the Gazprom or some of the contract that will be say that I see it’s developing quite well, nothing (inaudible) I will say. So I expect the conclusion with the each of the – within this year.

For Gazprom the situation even that the fact to be same and define that we’re still creating within Polish (inaudible) not to get a study, which we could concede reporting quite clear. I cannot also comment on the other impact those of investigations, but I could remind you that we say we confirm today that the Italy can clear a part of culture the impact over the Libyan configuration, the Libyan crisis the result should be (inaudible) recession, will be completely in line with what respect the final result would be brought in line with those of last year.

Alessandro Bernini

For Libya the expected average contribution of Libya production in Q4 is about 120,000 barrels a day and they impact. The shutdown in Libya for the full year 2011, is roughly 190,000 barrel per day.

Nitin Sharma – JPMorgan

Thank you.

Operator

Next question comes from Mr. John Reade from UBS. Please sir, proceed with your question?

John Reade – UBS

Yes, thank you. Two questions, one on gas again, are you able to estimate or give us some sort of estimates of what you think the absence of gas of Libya was A) on your gas and power business i.e. the absence of that cheaper gas. And also I think you mentioned in the second quarter, that it also had a negative impact on both of your refining in your petrochemicals businesses, with the absence of optimized feedstock, are you able to give some sort of economic some calculation there economic effect there. And can you just confirm the discovery that you’re talking about in Angola, Lira is that potentially a third pole on 15/06, is that correct thank you?

Paolo Scaroni

For the gas we’d say that we estimate kind of around 300 million of overall impact of the lack of the Libyan gas on this year, but also looking to the renewal of the Libyan gas is still tending to be mainstream and we should respect carbon next future, we could be more opportunistic from the next year.

Alessandro Bernini

As far as the effect of Libya on the other business is refining and marketing in petrochemical let me say that to be a factor on the results of those business line is negligible is limited as few million euro and we confirm we estimated that we have already provided in the first month of this year.

Paolo Scaroni

So Lira, we only confirm that is a very good discovery, it is mainly gas and condensate, we need a additional one or two wells to refine and appreciate that clearly that you mention with the discovery that this point is already big in term of gas. I think that can became a third hub, but more on the LNG side and with some good production of condensate, but I think that’s we’ll able to be more clear about this project, I think 2012.

John Reade – UBS

Just to follow-up, so would that be something that would naturally fit into your Angola LNG 2 project that you have?

Paolo Scaroni

Lira for sure as you know we have a joint venture with Sonangol for gas, for second possible LNG they already made some good discovery at Sonangol we discover about 2, 2.5 Bcf and that could be an additional gas and for sure, we believe and what we discovered we can already have the possibility to develop a fourth LNG or an additional train. But as it all view this issue is also connecting to the joint venture that we have in the Block 15/06, so we cannot extrapolate more and elaborate more in this subject.

John Reade – UBS

Thank you.

Operator

Next question comes from (inaudible). Please proceed with your question sir.

Unidentified Analyst

Good afternoon can I just ask about where we’re at on Iraq in terms of production levels because I don’t really understand if we still ramping up or whether the investment levels have slowed?

Alessandro Bernini

So, Iraq there is now production is about 240,000, 245,000 barrel per day, so we did a average production Iraq is a gross production and there is that we say the radian that the first half is because we’ve spent debottlenecking, it’s unbottlenecking sorry, in the contracts. So we are not able, we’re not being able to award all the content we forecast in 2011. So for that reason the production is going down. We think that is just a temporary situation, we are in transition phase and we are confident that we can restart the ramp up the production ramp up in 2012.

Unidentified Analyst

Could you perhaps start where you think production average returns for 2012?

Alessandro Bernini

The average production 2012 our target between 350,000 and 400.000 barrel per day gross production.

Unidentified Analyst

Thank you.

Operator

May I go ahead sir? Next question come from Mr, I beg your pardon for my pronunciation Mr. Theepan Jothilingam from Nomura International. Please sir proceed with your questions?

Theepan Jothilingam – Nomura International

Hi, good afternoon gentlemen and just some followup questions somewhere you’ve talked about before just on Mozambique, is it possible just to give us any rough estimates of what you’re thinking recovery factors would be for the discovery. And secondly, just on Libya, is it right to assume that you just see a ramp up in the condensate alongside the gas. And then just lastly, you are a little bit light in terms of the run rate on CapEx. Again, would it be right to assume that is just a simple rollover in the CapEx into 2012 when we assume to see a higher number for 2012. Thank you.

Paolo Scaroni

Recovery factor for Mozambique I think as I said we’re still drilling this well, we really we had some core and so we know, let me tell you that I think that’s (inaudible) physics so this kind of environment the average could be between 65% and 85% or 90% of the recovery factor. So that is the average that we have in our statistics, but as I said that is a broad range because we’re really still in early stage.

For Libya, yes, on increasing the gas production we are going to increase also the compensate, and so for the CapEx, I don’t think that we have a strong increase in our CapEx in 2012 because it’s just a question of commissioning some additional maintenance program that is more OpEx than CapEx.

Theepan Jothilingam – Nomura International

Thank you.

Operator

Next question comes from Ms. Lucy Haskins from Barclays Capital. Please proceed with your question madam.

Lucy Haskins – Barclays Capital

Good afternoon, gentlemen. Coul I ask, it’s a nice turnaround in the refining and marketing business. How much would you see is helping just a normal seasonal pattern in terms of the driving season was initially and how much is actually the self help measure, starting to see. And then perhaps from a flip side, chemicals process little lighter than we might have expected for the quarter, what’s the underlying challenges there, and again what can you do to adjust those issues?

Alessandro Bernini

Yes, you’re right, the positive result in the quarter of the refining business, must be consider the result of temporary positive effect unfortunately because in the quarter in particular, the refining margin in the Mediterranean has express some improvement about at the end of the quarter and right in October, the result has slightly worsen, and so it can be considered all the temporary positive effect.

So on the other side what is for sure, we will be maintained also over the next period is efficiency that we are pursuing through a lot of our initiatives that partially had been already completed and partially are still on going.

So we are dedicating a lot of our efforts to the efficiency process and throw this our initiative we had been already succeeded in obtaining significant cost saving in the refining business. Then as far as the marketing business is concerned for sure, you know the summer season is quite important for this type of business, in Italy in particular and effectively the margins that we have realized in the period relates to this seasonal effect.

So in the incoming quarters, we expected to be able to maintain more or less the same positive result in the marketing business even if associated to lower volumes whilst in the refining, we are a little bit negative for the future.

In petrochemical business, in particular you that we are engaged in the production of different line of products, some of them are maintaining (inaudible) in particular the elastomers are maintaining a very good result, whilst they not see the production of our petrochemical system is unfortunately there is a significant decrease in the demand. And accordingly, the volumes of the production has decreased significantly during the quarter. And we are also for this segment a little bit negative also for the last quarter of this year.

However, also in the chemical business, you know that we have launched a number of our initiatives, one which is the conversion of our Power Qatar as industrial site into a production of green products. But of course the production and benefits will come on stream only in the incoming years because the development will require at least one year to join the first level of production.

Lucy Haskins – Barclays Capital

Thank you.

Operator

Next question comes from Mr. Oswald Clint from Sanford Bernstein. Please proceed with your question, sir.

Oswald Clint – Sanford C. Bernstein

Yes, good afternoon, thank you. Could I just get some confirmation or level of detail on the gas price that Gazprom has committed to purchasing your volumes from Samburgskoye field. At what point in 2012 should that field start up, is it the first half or the second half? And then secondly just on Libya, I'm just curious, if you have actually restarted in any oil well, so I'm just curious if they are coming back on line inline with your expectations? So that’s focused on the oil wells. Thank you.

Paolo Scaroni

For Samburgskoye, the set up is focused for the first half of 2012. The gas price is a mix between the domestic price and exports and within that we can convert for 2016 because the reason annual increase. For Libya, yes, we will start one big oil field Waukesha. And by the third week of November, we will start moving that is oil absorption.

Oswald Clint – Sanford C. Bernstein

Okay. Thank you.

Operator

Next question comes from Mr. Iain Reid from Jeffries. Please proceed with your question, sir.

Iain Reid – Jeffries

Hi, gentlemen, could you update us on the status of catch again in terms of how far along the kind of project plan are you now. And maybe also give us some information about what the well flow rates have been, maybe you’ve been testing them. And perhaps also what you think the final CapEx might be for the whole project. And if possible any updates on any progress on Phase II?

Alessandro Bernini

So the progress on the income fees to catch again commercial production, we reach a 96.4% and that is an progress update mid October. So we are absolutely and we are ahead of our schedule that is the fair amount that we are ahead of schedule. And we think that we can reach 98% by the end of this year. So we are still on track, ahead of our schedule to reach the production in 2012.

From a production point of view, I think there is no problem, the well has been tested not now before and we feel, and the 21 wells we have to drill 14 wells for the experimental phase that is ongoing, but it’s continuing after the first production and each one is absolutely is a production absolutely enough to reach the first production that is 70,000 barrel per day. We did that on the first year to reach at the end of 2013 beginning in 2014, 370,000 barrels per day.

For the right cost, development right cost is something that we are discussing the project is not finished, I think that’s internal CapEx, direct CapEx for the development, we are not very far from our targets. That is what I can say at the moment.

Iain Reid – Jeffries

And on Phase II, I don’t think as they moved on that.

Alessandro Bernini

The Phase II is not our direct responsibility, it’s still under study because we renewed it, the result suspended for a while because we are able to optimize costs. I think that once we reached in the first production, the KCP for the first phase, we will think about the second phase. But for sure the first phase has a lot of investment and lots of synergy on the Phase II., so I don’t have any doubts about the Phase II. I cannot tell you now exactly the date, but I think that there is no doubt about the Phase II.

Iain Reid – Jeffries

Okay. Thanks.

Operator

No more questions at the moment. (Operator Instructions) The control room confirms there are no more questions.

Unidentified Company Representative

Great. Well, thank you very much. In which case, we’ll and the crew here and if you got any further questions do come back to us in the Investor Relations number. Thank you.

Operator

Ladies and gentlemen, the conference is over. Thank you for calling Eni.

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