Eni Releases Results for Third Quarter and Nine Months 2013

Eni, the international oil and gas company, announces its group results for the third quarter and nine months 2013 (unaudited).

Financial highlights2

• Adjusted operating profit: €3.44 billion for the quarter (down 15.7%3); €9.1 billion for the nine months (down 35.2%3);

• Adjusted net profit: €1.17 billion for the quarter (down 29.4%3); €3.13 billion for the nine months (down 41%3);

• Net profit: €3.99 billion for the quarter (up 61.9%); €5.81 billion for the nine months (down 5.8%);

• Operating cash flow: €3.04 billion for the quarter; €7.79 billion for the nine months;

• Leverage at 0.24.

Operational highlights

• Oil and gas production: 1.653 mmboe/d in the quarter, down 3.8%, due to extraordinary reductions in Nigeria and Libya (down 3.1% in the nine months);

• Recognized net consideration and net gain of €3 billion on the divestment to CNPC of the 28.57% interest in Eni East Africa, owner of the mineral rights in Area 4 in Mozambique;

• Produced first oil at the giant Kashagan oil field;

• Made large exploration successes offshore Mozambique, Congo and Australia;

• Resource base increased by 0.7 billion barrels in the quarter; 1.6 billion barrels in the nine months.

Paolo Scaroni, Chief Executive Officer, commented: “In the third quarter of 2013, we achieved significant exploration successes, made excellent progress in our development activities with new field start-ups and monetized part of our interest in Mozambique. These operating successes strengthen our profitability outlook against the backdrop of a quarter that has not only been affected by difficult market conditions in the European markets of mid and downstream, but also by the extraordinary reductions of production in Nigeria and Libya, and by the appreciation of the euro. Considering that these trends are temporary and given the solidity of our businesses, we will start the buyback program.”

Adjusted Operating Profit

In the third quarter of 2013, adjusted operating profit was €3.44 billion, down 15.7% when excluding Snam’s contribution to continuing operations in the third quarter of 2012. With the exception of Versalis, all of Eni’s businesses recorded a decline in operating profit. The Exploration & Production Division was down €419 million, or 9.7%, due to the appreciation of the euro vs. the US dollar (up 5.9%) and extraordinary disruptions; the Refining & Marketing and Gas & Power Divisions reported deeper losses of €113 million and €52 million, respectively, due to continued deterioration in sale prices and margins, reflecting weak demand, oversupply and increasing competitive pressures; finally the Engineering & Construction segment saw a contraction of 38.5% in operating profit due to a slowdown in business activity. It is worth mentioning that the Gas & Power Division results benefited only partially from certain price revisions at long-term supply contracts, some of which are still pending and therefore delaying the recognition of the associated economic effects.

In the nine months of 2013, adjusted operating profit was €9.1 billion, down 35.2% excluding Snam’s contribution to continuing operations in the nine months of 2012. This decline was driven by the trends described above and the operating losses incurred by the Engineering & Construction segment in the second quarter of 2013 following revised margin estimates at certain large contracts. Furthermore, the Gas & Power Division results for the nine months of 2012 were boosted by the economic benefits associated with the renegotiations of certain long-term gas supply contracts which had retroactive effects to the beginning of 2011.

Adjusted Net Profit

In the third quarter of 2013, adjusted net profit was €1.17 billion, down 29.4% when excluding Snam’s contribution to continuing operations  in the third quarter of 2012. The decline was due to a reduced operating performance, lower income from interests in industrial joint ventures and an increase of approximately 10 percentage points in the Group adjusted tax rate. This rose to 63.4% due to a higher contribution to Group profit before income taxes from the Exploration & Production segment which is subject to a larger fiscal take than other Group’s businesses.

In the nine months of 2013, adjusted net profit was €3.13 billion, down 41% when excluding Snam’s contribution to continuing operations in the nine months of 2012. The Group adjusted tax rate increased by 11 percentage points.

Net Profit

In the third quarter of 2013, net profit amounted to €3.99 billion, up by €1.53 billion or 61.9% from the same quarter of 2012 driven by the recognition of the gain on the divestment of the 28.57% stake in Eni East Africa, which retains a 70% interest in Area 4 in Mozambique, to CNPC, amounting to €3 billion net of the related tax charges. This positive was partly offset by a decrease in operating performance and other changes. In the nine months of 2013, net profit was €5.81 billion, down by 5.8%.

Capital Expenditure

Capital expenditure for the third quarter of 2013 amounted to €3.05 billion (€8.98 billion for the nine months of 2013) and mainly related to the continuing development of oil and gas reserves. In the nine months of 2013 the Group also incurred expenditures of €0.22 billion to finance acquisitions, joint venture projects and equity investees.

Cash Flow

In the third quarter of 2013, net proceeds from the transaction in Mozambique of €3 billion and net cash generated by operating activities of €3,036 million were used to fund financing requirements associated with capital expenditure (€3,053 million) and the 2013 interim dividend payment of €1,993 million to Eni’s shareholders. Net borrowings4 decreased by €1,346 million from June 30, 2013 to €15,146 million as of September 30, 2013 (down by €365 million from December 31, 2012, which also reflected a lower amount of trade receivables transferred to financing institutions).

In the nine months of 2013, net cash generated by operating activities amounted to €7,788 million, which was also impacted by a lower amount of trade receivables transferred to financing institutions due in subsequent reporting periods as compared to what has been done in the fourth quarter of 2012 (down by €388 million). Proceeds from disposals (€6,010 million) related to the divestment of Eni’s interest in Mozambique, as well as the divestment of the available-for-sale interests in Snam (€1,459 million) and Galp (€810 million). Cash outflows mainly related to capital expenditure (€8,984 million) and dividend payments (€4,200 million).

The ratio of net borrowings to shareholders’ equity including non-controlling interest – leverage5 – declined to 0.24 at September 30, 2013 from 0.25 as of December 31, 2012 and 0.27 as of June 30, 2013. The ratio was positively influenced by lower net borrowings, whilst, as far as shareholders’ equity is concerned, net profit for the period was offset by dividend payments and negative currency translation differences (down €1.12 billion) relating to net assets of dollar-reporting subsidiaries.

Exploration & Production

In the third quarter of 2013, Eni’s liquids and gas production of 1,653 kboe/d declined by 3.8% from the third quarter of 2012, reflecting significant force majeure events in Nigeria and in Libya (down by approximately 50 kboe/d). New field start-ups and continuing production ramp-ups mainly in Russia, Algeria, Angola and Egypt, offset planned facility downtime, in particular in the North Sea, and mature field declines. In the nine months of 2013, hydrocarbon production declined by 3.1% from the nine months of 2012 due to the drivers described in the quarterly disclosure.

Gas & Power

In the third quarter of 2013, Eni’s worldwide natural gas sales declined by 1.13 bcm, or 5.8%, to 18.35 bcm, mainly due to the use of the higher flexibility obtained from the renegotiation of long-term supply contracts. This was against the backdrop of an ongoing downturn in demand, intensified competitive pressure and oversupplies. Eni’s sales in Italy reported a slight increase (up 2.9% to 6.13 bmc in the quarter) due to higher spot sales offsetting continuing lower supplies to the power generation segment. Eni’s natural gas sales in the European markets decreased by 17.6%, particularly in the UK due to lower spot sales, and in France and Benelux reflecting increased competitive pressures. Gas sales in Germany/Austria reported an increase. Sales to importers to Italy experienced a substantial increase due to the recovery of Libyan supplies. Sales to extra-European markets increased by 5.3% in the quarter, reflecting higher LNG volumes sold in international markets.

In the nine months of 2013, natural gas sales of 67.61 bcm declined by 3.7% from the nine months of 2012, due to the same drivers described above and the divestment of Eni’s interest in Galp in 2012. Net of the impact of Galp, the reduction declined to 1.5%.

Refining & Marketing

In the third quarter of 2013, refining margins in the Mediterranean area fell sharply to $2.14 per barrel (down 73.1% from the third quarter 2012; down 39.9% from the nine months of 2012). This was driven by ongoing structural weaknesses in the industry due to overcapacity, shrinking demand and high feedstock costs. Furthermore, results at Eni’s refining business were adversely impacted by negative trends in differentials between the marker Brent and crudes supplied within Eni’s circuit.

In the third quarter of 2013, retail sales in Italy were down by 23.7% to 1.71 million tonnes (down by 15.9% in the nine months) due to falling domestic consumption and increasing competitive pressure. Eni’s market share dropped to 27.2% in the third quarter compared to a share of 34.5% in the same quarter of the previous year, which was boosted by the benefits associated with a marketing campaign “riparti con eni” during the summer weekends.

In the third quarter of 2013, retail sales in the European markets slightly increased to 0.83 million tonnes, or 2.5% (broadly in line with the nine months to 2.29 million tonnes) due to higher sales in Germany.

Press Release, October 30, 2013