Page 8 - Euroil Week 17 2020

EurOil PERFORMANCE EurOil
Eni runs red in Q1, cuts output guidance
ITALY
The company blamed the loss on inventory losses, impairments and other one-off charges, mostly related to low oil prices.
ITALIAN oil and gas giant Eni swung into the red in the first quarter, and has also cut its fore- cast for production this year, following the steep decline in oil prices.
The company posted a net loss of €2.93bn ($3.15bn) for the three months ending March 31, down from a €1.1bn profit in the same period last year. It blamed the reversal on inventory losses, impairments and other one-off charges, mostly relating to lower oil and gas prices.
Even excluding these costs, however, Eni suf- fered a 94% slump in net profits to €59mn. Oper- ating profits also plunged 44% year on year to €1.31bn, driven by a 55% fall in upstream earn- ings to €1.04bn. The company’s gas and power division provided some relief, managing a 29% increase in profits to €431mn.
“The period since March has been the most complex period the global economy has seen for more than 70 years,” CEO Claudio Descalzi said in a statement on April 24. “For the energy industry, and in particular for oil & gas, the complexity is even greater given the overlap of the effects of the pandemic with the collapse in oil prices.”
Eni has cut its capex budget for 2020 by 30% to under €5.4bn and reduced its plan for 2021 by 35%. The company told investors in a conference call that of the remaining capex planned for this year, some €2bn was considered vital for contin- uing operations.
The company added it intended to save about €600mn in operational expenses this year.
Because of spending cuts, Eni said it now expected to produce only 1.75-1.80mn barrels of oil equivalent per day in 2020, down from a Feb- ruary forecast of about 1.9mn boepd and slightly lower than last year’s level of 1.87mn boepd.
Eni has taken other steps to protect its busi- ness from the crisis. On April 23 it approved the issue of up to €4bn in bonds, and it has also
halted its share buyback programme. In addi- tion, its top management including Descalzi have deferred some of their pay.
However, the CEO told analysts in the con- ference call that it was not yet time to discuss dividends.
“We’ll see how [coronavirus] COVID-19 evolves in the next few months ... In July, we can update on the dividend front,” he said.
The company said earlier it would raise its 2020 dividends by 3.5% to €0.89 per share.
Also absent from Eni’s guidance was any potential impact from the OPEC+ agreement on output cuts. The Italian major works in several countries involved in the deal, but said to date it had received no requests from relevant govern- ments regarding cuts.
The company said its underlying cash flow had sunk 43% in the first quarter to under €2bn. It anticipates full-year adjusted cash flow of €7.3bn, but this assumes that Brent will trade at an average price of $45 per barrel. The global benchmark is currently going for less than half that amount, having shed two-thirds of its value since the start of the year.
Still, Descalzi described Eni’s balance sheet as “robust”, citing its €16bn in liquidity reserves at the end of March. This sum includes €3.6bn of cash on hand, €6.6bn of readily disposable secu- rities, €1.1bn in short-term financing receivables and €4.7bn in undrawn committed borrowing facilities.
These reserves “will allow the group to man- age the drop in business due to prices and the pandemic,” Descalzi reassured investors.
Looking forward, Eni said it expected a com- plicated year, with lockdowns easing at the end of May and oil, gas and power markets gradually returning to normality by early next year. How- ever, the company still sees Brent only averaging $55 per barrel in 2021. ™
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Week 17 30•April•2020