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.