Italy's Eni has further deepened capital expenditure (capex) and cost cuts after a heavy second-quarter loss caused by impairments resulting from lower oil price assumptions. And it switched to an oil price-linked dividend policy, cutting shareholder returns for this year.
Including inventory effects, the company made a loss of €4.41bn ($5.18bn) in the April-June quarter, compared with a profit of €424mn a year earlier. It took a post-tax impairment, mainly relating to oil and gas assets and refinery plants, of €3.5bn, and a post-tax loss on stock of €1bn in the second quarter.
The company has lowered its benchmark Brent crude price assumptions to $40/bl this year, $48/bl in 2021, $55/bl in 2022 and $60/bl in 2023. Its previous assumptions were $45/bl in 2020, increasing to $70/bl in 2023.
"Spot gas prices at the Italian hub have been reduced by 30pc in the long-term, while refining margins are expected to decline in the short term," Eni said.
It now expects capex of €5.2bn this year, down by €2.6bn, or 35pc, from its original plan and some €300mn lower than the revised plan it gave at the start of the Covid-19 pandemic. These are "almost fully focused" in exploration and production, Eni said. Cost savings will amount to around €1.4bn this year, with around the same amount in 2021. The 2020 savings are €800mn deeper than in the previous guidance.
"Overall investments in the four-year period 2020-23 now amount to €27bn, with a €4.7bn decrease compared to the plan originally approved and due to the measures put in place in the upstream business in 2020-21 period," it said. "Additional investments of €800mn in 2022 and 2023 have been allocated to the businesses involved in the energy transition, in particular bio-refining, renewables and the retail customer segment."
Eni's oil and gas production averaged 1.71mn b/d of oil equivalent (boe/d) in the second quarter, down by 6.6pc from a year earlier. It said the fall was caused by the effects of the pandemic, Opec+ production cuts and lower gas demand, mainly in Egypt.
The company sees its output averaging 1.71mn-1.76mn boe/d this year, in line with its earlier guidance. It said output will reach around 2mn boe/d in 2023, and around 2.05mn-2.1mn boe/d in 2025.
Eni's refinery runs were down by 5pc in the second quarter from a year earlier, at 5.34mn t (430,000 b/d).
Net debt gearing stood at 51pc at the end of June, up from 41pc three months earlier. Its dividend will "no longer be a fixed amount, in an environment increasingly subject to high variability," chief executive Claudio Descalzi said.
The new policy combines a floor and progressive component tailored to a Brent price of at least $45/bl, with a variable component tailored on price growth up to $60/bl, beyond which a buyback programme will be relaunched, he said. As an exception, Eni will pay "the floor dividend" this year, even though it expects Brent to average $40/bl.
