Weaker Prices Dent Eni Earnings

Eni said it has resumed its oil and gas production growth trajectory in the fourth quarter (Q4) but saw profit decline as selling prices declined for not only oil and gas but also renewables.

The Italian government-controlled energy major reported EUR 1.64 billion ($1.8 billion) in net profit adjusted for extraordinary or nonrecurring items for the fourth quarter of 2023, down from EUR 1.82 billion ($2 billion) for the prior three-month period and EUR 2.5 billion ($2.7 billion) for the fourth quarter of 2022. Annual adjusted net income landed at EUR 8.3 billion ($9 billion), down from EUR 13.3 billion ($14.4 billion).

“Notwithstanding a volatile scenario featuring both weaker Brent (down by 5 percent from Q4 ‘22) and natural gas prices (down 57 percent for the European benchmarks), in Q4 ’23 Eni’s adjusted profit before tax was EUR 3.2 bln [$3.5 billion] with a FY [financial year] adjusted profit before tax of EUR 15.1 bln [$16.3 billion], signaling a robust Group performance driven by strong operational execution and financial discipline”, Eni declared in earnings release.

It highlighted natural gas and liquefied natural gas (LNG) delivered record earnings for the company. “FY ’23 adjusted EBIT [earnings before interests and taxes] was a record EUR 3.2 bln, up by 57 percent compared with 2022, driven by an optimized natural gas and LNG portfolio and contract renegotiations benefits, while maintaining stability and reliability of supplies to European markets and compensating for the reduction of Russian volumes”, Eni said.

In the fourth quarter Eni’s gas business benefitted from “the favorable outcome of an arbitration procedure”, the news release stated providing no details.

Reuters reported November 27 citing trading sources that an arbitration court had ordered German gas trader Uniper SE to pay EUR 550 million ($595.1 million) to Eni over an LNG supply contract that expired 2022.

Not only oil and gas, renewable power also made lower proceeds for the fourth quarter due to lower marketing margins. However, adjusted annual EBIT for renewable electricity rose 11 percent to EUR 680 million ($735.7 million) “leveraging on strong performance in the retail business and the material ramp-up in renewable capacity”, Eni said.

Plenitude, Eni’s renewables arm, has now reached 3.0 gigawatts of capacity, according to the company.

“In Q4 ’23, Group adjusted operating cash flow before working capital at replacement cost was EUR 3.6 bln [$4 billion], exceeding outflows related to organic capex of EUR 2.4 bln [$2.6 billion], and resulting in an organic free cash flow ‘FCF’ of EUR 1.2 bln [$1.3 billion]”, Eni said. “In the FY ’23, adjusted cash flow was EUR 16.5 bln [$17.9 billion, exceeding outflows related to capex of EUR 9.2 bln [$10 billion], resulting in an organic FCF of around EUR 7.3 bln [$7.9 billion]”.

Eni saw production rise sequentially and year-on-year to 1.71 million barrels of oil equivalent per day (MMboepd).

Eni added 900 MMboe to its reserves last year “driven by the exceptional Geng North discovery in Indonesia, one of the best in the whole sector, and continuing success in Egypt, Mexico, Algeria, Tunisia and UAE”, it said. Eni announced October 2 a “significant gas discovery” at the Geng North-1 exploration well under the North Ganal Production Sharing Contract in the Kutei basin, reporting preliminary estimates of 5.0 trillion cubic feet of gas and 400,000 barrels of condensate.

“Indonesia is expected to become one of the major growth drivers of natural gas in E&P [the exploration and production segment]”, Eni said in the earnings announcement. “The giant Geng North discovery coupled with the integration of Neptune assets and of the interests in the Rapak and Ganal PSC blocks, farmed-in from Chevron, will give Eni access to massive resources whose development will be synergistic with Eni’s existing fields and the Bontang LNG export terminal, offering the prospect of transforming the Kutei basin into a new world class gas hub”.

On January 31 Eni announced the completion of its side of a transaction that saw Neptune Energy Group Ltd’s assets in Germany and Norway go to Var Energi ASA and the remaining to Eni.

Eni added in the earnings announcement, “Among the production highlights of the year, we can count the startup of the Baleine oilfield, off the Côte d’Ivoire, in less than two years after the discovery, and the commissioning of the Tango FLNG vessel in block Marine XII off Congo, which will deliver the first LNG cargo in the first quarter 2024 on schedule”.

It said it had invested EUR 2.4 billion ($2.6 billion) into decarbonization-related acquisitions including gas assets in Algeria in 2023.

Eni returned EUR 4.8 billion ($5.2 billion) to shareholders through dividends and buybacks last year.

Eni set March 14 for the announcement of financial and operating targets for 2024.

To contact the author, email jov.onsat@rigzone.com