Stronger price environment pushes Eni 1Q profit past $1 billion

Italian oil and gas company Eni booked a net profit of over $1 billion in the first quarter of the year due to a strengthened upstream price environment.

Eni CEO Claudio Descalzi; Source: Eni

Eni said in its financial report on Friday posted a net profit of €856 million ($1.034 billion) due to a strengthened upstream price environment in the first quarter 2021 and a recovery in the main market benchmarks. This compares to a net loss of €2.93 billion ($3.16Bn) in the first quarter of 2020.

Cash flow from operations before changes in working capital at replacement cost was €1.96 billion and net capex of €1.4 billion – 27 per cent less than in the first quarter of 2020. Organic free cash flow generation was approximately €600 million before changes in working capital.

Eni’s hydrocarbon production in the first quarter of 2021 decreased by 5 per cent compared to the first quarter of 2020. Net of positive price effects, the decrease was 6 per cent driven by the need to comply with OPEC+ production cuts and marginal portfolio effects, a spending slowdown in the development of reserves with lower contributions from Nigeria, Kazakhstan, and Angola, as well as mature field declines.

These negatives were partly offset by continuing production ramp-up in Mexico, better contribution of Libya, and increased gas supplies to Egypt spurred by a demand recovery in the local market.

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In the quarter, production at the Zohr gas field achieved a record 3,200 mmscf/d at full capacity, the company started-up the Merakes gas field offshore Indonesia in synergy with the Jangkrik FPU while other start-ups and ramp-ups added 33 kboe/d mainly due to Berkine in Algeria, Agogo in Angola, and the Mahani gas project in the UAE.

Eni improves financials

Eni CEO Claudio Descalzi said: “The first quarter of 2021 has been significantly impacted by ongoing national lockdowns, however despite this Eni has achieved significantly improved results, most notably driven by E&P and the chemicals business.

Meanwhile, our retail G&P business continued to grow steadily, with year-on-year EBIT increasing by 19 per cent as we leverage our unique and expanding customer base in the power segment and benefit from a greater contribution from extra-commodity services.

The performance of R&M was largely driven by lower demand for fuels across Europe due to the pandemic, plus negative refining margins.

Against the backdrop of an ongoing complex scenario, adjusted EBIT of $1.57 billion is in line with the first quarter of last year and three times higher than the fourth quarter of 2020, while net profit grew to $316.3million, an almost five times increase compared to the first quarter of 2020.

Across the quarter, we generated around $2.4 billion of organic cash flow before working capital, significantly larger than the $1.7 billion of expenditure incurred during the same period.

With the pandemic situation gradually improving, and a broadening economic recovery looking more likely, we have been able to improve our outlook for the coming months, forecasting free cash flow generation in 2021 of more than $3.62 billion under a Brent scenario of $60 per barrel.

In this environment, we will continue implementing our decarbonization and energy transition strategy, maintaining a strong focus on the robustness of the balance sheet and targeting a competitive distribution policy to our shareholders”.

2021 Outlook

In its outlook, Eni stated that the rebalancing of the global oil market and a recovery in fuel consumption in 2021 was still exposed to continued risk from the ongoing impact of the Covid-19 pandemic in several large global economies, such as in multiple West European countries that are still in lockdown, as well as new restrictions being reimposed in other parts of the world.

The company reaffirmed the guidance for hydrocarbon production at about 1.7 million boe/d for the full year, assuming OPEC+ cuts of about 35 kboe/d through the year on average and an organic capex spending forecast for 2021 of approximately $7.25 billion.

[These conditions] forecast cash flow from operations before working capital requirements at replacement cost higher than $10.9 billion at current Brent prices of 60 $/bbl”, Eni said.