埃尼石油 (E) 2008 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Eni 2008 Third Quarter Results Conference Call. My name is Rachel and I will be your coordinator for today's conference. For the duration of the call, you'll be on listen-only. However, at the end of the call, you will have the opportunity to ask questions. (Operator Instructions).

I am now handing you over to Mr. Scaroni to begin today's conference.

Good afternoon, everyone, and thank you for attending our third quarter results conference call, despite the unusually late time. I apologize for the delay. It was caused by the signing of the final Kashagan agreement, on which I will be happy to answer your questions at the end of the presentation.

We are pleased to be reporting a very strong set of numbers today. In a minute, [Sandro] will take you through those in details. Looking ahead, we are currently working on our plan for 2009-2012, and we will update you on our strategy presentation next February. But given the turbulence that we are seeing, both in the wider financial markets and in the oil market itself, I thought it might be helpful to give you my perspective on how this affects our future plans.

The first point to make is that Eni's strategy is devised on the basis of a conservative oil price scenario. Indeed, our 2008-2011 strategy was built on the assumption that the average oil price would be $64 a barrel in 2008 and would then fall to $57 a barrel in 2009, $56 in 2010, $55 in 2011, and $50 in the long term.

This is the scenario that we used last year in the rigorous assessment process to determine our investments and, actually, I would expect the new scenario to be very close to it. Therefore, the four-year capital expenditure plan that we presented in February is robust in the current market conditions and the upstream acquisitions that we've completed to date are cash generative and solid, below the long-term assumption of $50 a barrel oil price.

Having said that, we are obviously monitoring our CapEx closely, with particular attention to the time to market and risk profile of each project, and I can anticipate that we have the flexibility to respond appropriately to changing market perspectives.

Our conservative scenario also governed our thinking on cash priorities and distribution. As we said last February, we are firmly committed to maintain a leading dividend yield, also, leveraging on the resilience of our gas and power division, which enables us to remain highly cash generative, even at a time of falling oil prices.

With that, I would like to hand over to Sandro to take you through the numbers, after which, together with Claudio, we will be happy to take your questions.

Thank you, Paolo, and welcome to everybody. This is something of a landmark for me, as this is my first presentation as Eni's CFO, and I am pleased to start with a strong set of results that provide solid support in this uncertain time.

Going to the results, adjusted net profit in the third quarter amounted to EUR2.9 billion, an increase of around 53% compared with a year ago. This was largely due to a 46% increase in the adjusted operating profit that totaled EUR6.2 billion, as a result of the good operating performance and the strong trading environment on the exploration and production division, on which I will comment in a minute.

Moving now to our business segments, in the exploration and production, hydrocarbon production in the third quarter increased by more than 6% compared to the same period of 2007. This strong performance is the result of the startup, buildup, and better performance in Angola, Congo, Egypt, Pakistan and Venezuela, and the contribution from the Baron Energy acquisition, which totaled 24,000 barrels per day. These improvements were partially offset by the impact of the production shedding agreements that accounted for 60,000 barrels per day. Net of this effect, growth would have been of around 10%.

The PSA impact is based on the new 2008 sensitivity of around 1,500 barrels per day for each US dollar change. The lower sensitivity resulted from the recovery and the screening of our PSA contracts, which proved to be less sensitive to changes in oil price. Having said that, assuming an average oil price of around $100 per barrel, our full year production will reach a record level, increasing by approximately 3%, one of the highest growth rates in the industry.

The third quarter adjusted operating profit amounted to EUR5.3 billion, up 60% compared to one year ago, mainly as a consequence of high realization prices denominated in US dollars and higher production sort. These improvements were partially offset by the appreciation of the euro versus the US dollar and the higher depletion depreciation and amortization. In dollar terms, third quarter adjusted operating profit increased by 75% versus the corresponding period of last year.

As far as the gas and power division is concerned, overall, gas volumes sold slightly declined in the third quarter of 2008, as a result of lower sales in Italy, partially compensated by the growth in international sales. The gas and power adjusted operating profit amounted to EUR564 million, down 3% over the same period of 2007. Gas and power adjusted pro forma EBITDA for the third quarter of 2008 amounted to EUR781 million. This compares to EUR797 million in the third quarter of 2007.

Marketing segment result decreased by 9%. This reduction was primarily due to the lower volumes sold as a consequence of the stronger competitive pressure in Italy, as well as to lower electricity sales. This negative elements was partially offset by the favorable scenario in terms of both the [yusa] appreciation versus the US dollar and the trend in energy parameters to which gas purchase cost and selling price are indexed.

The regulated business generated EUR228 million, up 6% versus the third quarter of 2007. The increase is due to the improved operating performance and to the recognition in tariff of expenditures incurred for new investments and for the upgrading of the existing transportation network. Finally, international transportation showed a 6% increase versus the third quarter of last year, thanks to the increase in transportation capacity.

Turning now to refining and marketing, adjusted operating profit of this division increased by around 56%. The higher refining margins in dollar terms were partially offset by higher maintenance activities and the appreciation of the euro versus the US dollar. Marketing segment benefited from the higher volumes sold due to the higher market share in Italy and the full contribution from the acquisition in Eastern Europe. Furthermore, marketing margins showed a positive trend.

As far as the other businesses are concerned, in the third quarter of 2008, the petrochemical business, represented by Polimeri Europa, posted an adjusted operating loss of EUR59 million compared to a EUR30 million profit in 2007. This loss is due to the negative base chemical margins resulting from the higher feedstock costs. In the engineering and construction sector, third quarter adjusted operating profit amounted to EUR276 million versus EUR211 million in 2007. The increase is attributable to higher results across all business lines.

Turning now to cash flow, this slide compares our sources and uses of cash in the first nine months of 2007 and 2008. Operating cash flow increased to EUR16 billion, up 20%, and disposals provided a further EUR500 million. The strong cash generation fully covered the EUR9.9 billion CapEx and the EUR5.9 billion of shareholder distributions, which included a payment in September of the 2008 interim dividend.

Net financial debt as of the end of September increased to EUR17.8 billion and our net debt-to-equity ratio declined slightly to 0.37. Assuming $100 per barrel for the full year, on the basis of planned outflows, which means EUR14.4 billion of technical CapEx, the acquisition of the majority stake of Distrigas and the total acquisition of First Calgary leveraged at the year end is expected to be lower than that of the end of September.

With regard to the liquidity position that capitalize the attention of investors and analysts in the last weeks, I want to provide you more information. Our short-term debt amounts to EUR9.3 billion, of which EUR3.1 billion are euro commercial paper. The market for euro commercial paper has always been open for Eni, even in these severe financial market conditions. From a strict liquidity perspective, we can rely on more than EUR7 billion of cash and committed undrawn facilities.

The strong cash generation, the high credit rating and the availability of diversified commitment bank lines, without material adverse change conditions, and the financial covenants provide the evidence of a strong financial position and allow ourselves to cover both short and long-term financial needs.

Thank you for your attention. And now, we are ready to answer to your questions.

Thank you. (Operator Instructions)

No question? Hello?

Okay. The first question comes from the line of [Ian Reid] from the [Quarry Bank]. Go ahead, please.

Good evening, gentlemen.

Good evening.

Good evening.

Three questions, please. First, Paolo, you mentioned in the last conference call that you were going to be talking to [Gas Naturale] in September about the potential preemption of the Union Fenosa Gas joint venture. I wonder if you could update us on the status of that.

Secondly, I think you announced yesterday or the day before that Gazprom have now started to back in on the Russian Arctic Gas and [Uring Oil] assets. I wonder if you can tell us what percentage back-in they've taken and what this means for the Gazprom Neft stake you currently hold.

And thirdly, on the buyback, you have -- you're very close to the 10% limit on that. I wonder what you're going to do. I wonder if you could tell us what you're going to do in terms of canceling the shares and getting authorization for a new buyback. Thanks very much.

Good, good. Let me answer these three questions in succession. No, Gas Naturale, you are right. We have been in contact with Gas Naturale about our Union Fenosa stake there. As you know, there is a mechanism which could lead to either buying the 50% or selling our 50%.

We have received as an answer that Gas Naturale prefers to wait until the full process of authorization is finished before starting any discussion. This process will end up at the beginning of next year. We are planning, at the beginning of the next year, to be in contact with Gas Naturale to start a discussion based on new market conditions, okay.

The second point, Arctic Gas and Gazprom -- let me start saying that as far as Gazprom Neft is concerned, we held a meeting yesterday with Gazprom and they confirmed to us their intention to exercise the call for this 20% in due terms. I think that their option expires on the 9th of April -- on the 4th of April, on the 4th of April, and within that date, they should be exercising the call.

On the other hand, yesterday, I saw that Gazprom held a third quarter results presentation and within the presentation, they disclosed their CapEx for 2009 and within the number that they presented was included the $4.5 billion, which is essentially the price they have to pay, including interest, less dividend, et cetera. So, let's say they are certainly moving in the direction of exercising the call. There is an obligation. So for me, it's difficult to give you what we bid, a final position, although the sentiment I have is that they want to exercise the call.

Now, on Arctic Gas, Arctic Gas with Uring Oil, the assets will go under the name of several Enel here. The company we hold together with Enel and on which Gazprom has a call. Yesterday, we reached an agreement. It's a kind of complex agreement, so I will not go into all the details, but progressively, Gazprom will enter into the capital of the company. So, they will end up being our partner in 51%. They will start buying the first 10%, 10% of the total company, so the first 5.1%, in the next few weeks. Their entry is not important in financial terms, because we are talking about small numbers, but is very important in terms of speeding up the process of making all the required investment to put into production Arctic Gas.

Now, on the buyback, you are right. We are very close to reaching the 10%. This is -- what we will be doing with this 10% will be a decision we will be taking next year, within the shareholder meeting on next year, because as you might remember, in order to cancel those shares, we have to bring it to the shareholder meeting. We have not really been focusing very much on what we will be proposing to our shareholder meeting next year, but we will be more precise next February at our results presentation.

Okay. Thank you. Just one bit of clarification. So, you say Gazprom have got 5.1% at the moment?

Yes.

So, do you expect them to go up to the full --

To the 51%.

-- 51% sometime in '09?

It is a fairly complex agreement. It will take me maybe 10 minutes to explain all the details. But let's say it's a mechanism which is -- in which Gazprom continues to have the option to grow to the 51% we were, which has always been in our plans. There is also some good mechanism in our hands if the process of licensing that we need to achieve will not be according to our plans. So let's say, for me, what is relevant is not exactly the financial side, because as you know, here, we are talking about fairly small numbers.

At the end of the day, when Gazprom will be buying the 51%, their total investment will be in the region of $1 billion. So, we are talking about a much smaller number than Gazprom there. What is relevant to us is whether, as a partner, in the whole process of licenses and in CapEx and [take home] - how do you say that -- [off stake] agreements, to have Gazprom with us.

Okay. Thanks very much.

Thank you. The next question comes from the line of Michele della Vigna from Goldman Sachs. Go ahead, please.

Hi. It's Michele della Vigna here. I wanted to ask two questions. The first one is that you've just, from what I was understanding, come back from Kazakhstan. Could you now give us a CapEx figure for the first phase of the project?

And then, my second question is relating to your 2009 CapEx. If the oil price was to fall further from here, what is your flexibility for the 2009 CapEx and, more specifically, in terms of the FID of some of your major new projects and what timing have you got in mind now for the third phase of (inaudible) and for Goliath and for the second train of [Vignetta]?

Now, you're quite right. I came back from Kashagan five -- well, 10 minutes ago. I think we finally reached a final agreement, which was on the lines of what we have been signing on the 15th of January in [Escana]. So, no real -- I mean, nothing major changed from that.

As far as the CapEx, for Phase 1, the total CapEx for Phase 1 will be $38 billion. But this number, to make it comparable to the numbers we have been disclosing before, you should deduct the Phase 3, which was not included in previous numbers, plus the train, the railway station that we are building in Escana in order to export oil. So, the two numbers are not exactly comparable. If you were to compare them, we should compare the $19 billion we presented in the past to $25 billion. So, the difference between $25 billion and $38.6 billion is additional scope of work.

On the other hand, the experimental program, which we will continue to hold responsibility, is now projected to give a production capacity up to 450,000 barrels, as compared to the 300,000 barrels which was announced before. That's the first point.

Now, moving to our CapEx plans for the future. Now, are in the process of -- as you know, this month, for us, is our planning month. So, we do not really have numbers. I can give you feelings of what we are going to possibly propose to our Board the beginning of next year. So generally speaking, the numbers of our plan should be close to the numbers of previous plans. So, you should not expect different numbers.

Second, as far as the flexibility that I mentioned, there are some projects which could be launched and which we've included in our plans, but all could be postponed according to market conditions, and we want to have some flexibility in order to decide, according to market conditions, which projects will be going ahead. Okay? So, you should imagine a plan similar to this year's plan, but with embodied some flexibility. And as far as production is concerned, we are not expecting any change for next year from the targets that we already announced.

Great. Thank you.

Thank you. The next question comes from the line of Dave Thomas with Citigroup. Go ahead, please.

Yes. Good afternoon, gentlemen. I've got a couple of questions, please, not to do with cash again, surprisingly enough, but on a couple of your interests, perhaps. One on Galp. There's been a comment today from Amarin suggesting they might be interested buying a nice stake in Galp. Given your comments on the previous conference call, I'd like to encourage you to give some comment back on that.

And secondly, on Papua, New Guinea, you have an interest in Papua, New Guinea, through a recent accord with the government over exploration. I just wondered whether you have any interest in the LNG project that's in that area, also?

Now, let me first comment on Galp, no? Let's say -- let me make a general statement first, no. Every time that we hold a stake in a company which is doing our business, which is really doing our core businesses, our general objective is to own 100% of it. So, this is the general idea. We do not want to have stakes here or there. We want to have, in our core businesses, companies which are fully integrated with us, making all the synergies of our business.

So this is the general statement, no. Within this, we look at Galp. Galp has been a phenomenal business for us. We have been investing, if I'm not wrong, EUR900 million. We got back more than EUR0.5 billion of dividends so far and our stake -- I've not looked lately if the stock has changed, but might be worth EUR3 billion or EUR4 billion, something like that. So, we are very happy with it. The relationship with Mr. Amarin is very good. We are very pleased of how we have been managing this investment in the interest of our shareholders.

Having said that, I mean, this is not going to last forever and we consider that we are ready either to move to the position it has had before, that is, to be the majority shareholder and possibly the total shareholder of the company one day, or we are certainly ready to receive offers for our stake at conditions that we would judge of interest to our shareholders. In any case, there is no negotiation whatsoever of anything with Mr. Amarin. I don't know why he made this declaration, but I read it exactly as you read it.

Maybe on Papua, New Guinea, I will ask Claudio to tell you something.

Thank you, Paolo. Good afternoon. Talking about Papua, New Guinea, what I can say is that a few weeks ago, we signed an agreement for new exploration areas. These exploration areas are fresh, new, virgin areas, all [raw], exploration areas with some wells already drilled.

We are looking for gas, for sure, but we are looking also for oil, because there are oil in that province. So, this is an exploration project. It is not linked to the existing Exxon LNG projects. For sure, if we find some gas, we are ready to participate, but we understood that the joint venture is already set up. So, maybe in the future, but it is not the case at the moment to look for a new LNG, because we are in an exploration phase. Good?

Okay. Thank you.

Thank you. The next question comes from the line of [Sergio Bonasoni] from UniCredit. Go ahead, please.

Good afternoon, gentlemen. A question on strategy, if I may. You often emphasize that the value of the integration of the exploration and production in gas and power divisions. Do you think such synergies will continue to justify keeping both business together going forward? Thank you very much.

Good. Well, you are right. We always emphasize this unique feature that Eni has got as compared to other oil majors. Now, the gas and power division is a strong generative business, which enables us to have a competitive advantage for integrated gas projects and in the dialogue with oil and gas producing countries. Let me just mention our position in Algeria and in Russia as a sign -- and in Libya, as well -- of this double position we have.

Now, of course, when you look at the gas and power division, there are two components in this business. First, we have the merchant part of the gas and power division, which are essentially our wholesale and retail activities. We are the European leaders in this business, which is strongly cash generative, despite having limited capital employed and zero CapEx.

This is the part where there are greater synergies with E&P and, of course, we want to own 100% of this business in order to continue to start the strategic and economic value. Then, we have the infrastructure-based activities, which are either regulated, and this is the case of Italgas, of [Snometra] Gas and of [Stargit]. All are semi-regulated, which are our international pipeline network. And to a lesser degree, we have also, in this region, Eni Power. These assets have, of course, fewer synergies with E&P and we do not necessarily need to hold onto 100% of these activities going forward. Okay?

Okay. Thank you very much.

Thank you. The next question comes from the line of Will Forbes from Credit Suisse. Go ahead, please.

Yes. Good afternoon. I have two questions. The first one is just on the balance sheet and whether you think, in the current volatile oil price environment, you think that you have the flexibility, the appetite for further acquisitions and if so, what kind of size? And the second one is just on the clarification of the Galp point. My understanding of the shareholders' agreement for Galp is that both Amarin and Eni can't change their percentage stakes until at 2010. Is that the case? Thanks.

Correct. Correct. Let me answer to that question saying correct. Of course, we cannot change it. But we could always make a deal between us.

Okay, fine. So, your stake wouldn't change then if you have an agreement in order to change [from that to the end of] 2010?

No, no, in [2008]. Now, let me answer your question. Now, we -- let's say we have always been looking at potential acquisitions which are very synergic with our activities. Now, in order to find lots of synergies, it is very unlikely that this will happen in large acquisitions. It is much more likely that this happens in small acquisitions, such as, as an example, First Calgary. First Calgary, it is an acquisition, but, in fact, what we acquired is in assets, which is close to our own existing assets.

So, looking into the future and then talking about our appetite, our appetite if any, is -- we'll always be targeting small targets, which, one way or the other, have synergy with us. It is possible that in the future there will be opportunities such as I described. We will look at them closely as we have been doing in the past, in the interest of our shareholders.

Okay. But with the volatile share price -- oil price environment, you're happy that you're making enough cash flow in various scenarios, you can say, down to $40 or $50 for next year to give yourself enough flexibility [space for] acquisitions?

Look, we will be fixing a scenario, conservative, a long-term oil price scenario, conservative, as we have been doing so far. We did not get excited when the oil price went up to $150 and we do not get desperate when the oil price goes to $65.

We will always use a scenario which is conservative, which is, in the long term, what we should expect and look both at our internal CapEx and into acquisitions, keeping in mind that they should pass the test of our scenario. Now, of course, when you talk about acquisitions, you should add synergies, which are the most important thing that creates value around an acquisition.

Okay. Thank you.

Thank you. The final question comes from the line of John Rigby from UBS. Go ahead, please.

Yes, hi. I have three questions. The first is on Gazprom again, going back to the point you raised right from the start. If one was to envision the current financial crisis were to come into even the new year, would you, given your desire to maintain good relationships with Gazprom, envisage some kind of flexibility around the original transaction that has been negotiated either by extending the option period or perhaps aiding Gazprom via some sort of financing or changing the arrangement in some sort of way?

Second is just on Kashagan. I think while we were in Kazakhstan, you indicated that you felt there was something of the order of 25% or so of your E&P technical staff on the project right now. Do you envisage some release of those technical staff A, because you're getting to the point where the project has basically been agreed by the partners, and, B, clearly there is a division of labor now approaching between the partners as the new arrangement kicks in, and do you see benefits from that?

And the third -- I'm sorry to come back to this one -- on Galp, do you also or could you envisage an arrangement whereby you could access the type of synergies and upsides that you talked about without necessarily holding 100% of that company? Thanks.

Okay. I will say something about Gazprom and maybe Galp and I would leave it to Claudio to tell you more about our future in terms of HR employment there. Now, on Gazprom, let me just tell you how we see. Now, of course, Gazprom is a very important relationship for us and we want to keep very good relationship with them.

Now, in financial terms, when we look at Gazprom, never forget that we are paying every month a check to Gazprom in the region of EUR500 million. So, let's say there is a flow of cash which goes from our pockets to the pockets of Gazprom every month. So, if there were to be discussed a different financial arrangement, this could play a role as well. Am I clear about that?

Yes. Absolutely.

Okay. First point. Now, on Galp, now, of course, we can make some synergy and we're already making some synergies with Galp, particularly in the gas division and also in E&P. We have succumbed a few people from Eni into Galp and we try to do our best in order to extract synergies. But, of course, it is very different when a company, has its own strategy, its own management, its own objective -- by the way, I consider Galp a company which is managed appropriately and correctly. So, no criticism at all from that.

Let's say -- since this company is doing gas and we are the leader gas company in Europe, is doing E&P and we are an important player in E&P, is doing refining and we are in refining, as well, but you understand the long, long term, say, 10 years from now, for me, it's hard to imagine that we will continue to hold 33.34%. This is a stage in the process. We are in no hurry at all and a colleague of yours correctly flagged the fact that until 2010, we have a standstill agreement. So, we are not planning in any case to make any move. But if I look ahead 10 years from now, certainly, I consider the fact of being standing still is fairly unlikely.

And as you point out, all arrangements are there to be rearranged if both parties agree.

Yes. Yes. We could rearrange the position in the interest of both shareholders. But we are extracting some synergy, you are quite right.

Now, the question to cash again, please, about resources. You know that we are still responsible, in charge for the experimental project, and that means that most of our people will be there to -- in the next three years to get the production, 2012, and the rest that are now on the second phase, and I mean, more or less 20%, between 25% to 28%, we will move on other projects.

So, this kind of synergy and this kind of reduction of our resources still in place will move some of these people with -- on the second phase with [Totale] and Shell and Exxon, but for sure, we can save some human resources, about the number that Paolo said last time, 20%, 25%.

So, there's a positive flow back from that back through the rest of your --

That is a very positive sign, yes.

Okay. Thank you.

Thank you.

Thank you. Unfortunately, there is no time for any further questions. So, I'll hand you over to your host to conclude today's conference.

Okay. [Thalia], what do you want to say?

Thank you, everybody, for participating in the conference. Sorry for the late time, again. Bye.

Thank you for attending today's conference. You may replace your handsets.