埃尼石油 (E) 2010 Q1 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to Eni's Call Conference on its 2010 First Quarter Results, hosted by Alessandro Bernini, Chief Financial Officer. For the duration of the call, you'll be on a listen-only mode. However, at the end of the call, you will have the opportunity to ask questions. I'm now handing you over to your host to begin today's conference. Thank you.

Good afternoon ladies and gentlemen and welcome to our first quarter results presentation. Here with me today are Claudio Descalzi and Domenico Dispenza. We will be happy to answer to your question at the end of the presentation. In the first quarter of 2010, the market fundamentals had a mixed impact on Eni's results, and the energy sector in general.

Oil prices increased by 72% compared with the first quarter of 2009, while European refining margins, which averaged US$2.4 per barrel, were down 55%. Finally, the euro showed an appreciation of 6% versus the US dollar, averaging US$1.38 during the quarter. As usual, I would like to remind you that Eni's results are affected by several issues, including the seasonal nature of demand for natural gas and petroleum products used for its residential heating, which peaks in the first quarter of the year, and is at its lowest in the third quarter. Therefore, Eni's operating profit and change in net debt in the first quarter cannot be extrapolated for the full year.

Moving to the results, adjusted operating profit in the first quarter was EUR4.3 billion, up 16% year-on-year, thanks to the higher contribution of the exploration and production division, partially offset by the weaker performance of the gas and power and refinery marketing divisions. Adjusted net profit in the first quarter increased by 4% to EUR1.8 billion as a result of a stronger operating performance, which was partially offset by the higher adjusted tax rate, up four percentage points in the quarter as a consequence of the increased contribution of the E&P.

Hydrocarbon production in the first quarter increased by 2.1% compared to the same period of 2009, averaging 1,816,000 BOE per day. This increase is due to the production ramp-up and new field startups mainly in Nigeria, Congo and Gulf of Mexico, as well as lower OPEC caps of 26,000 BOE a day. This positive were partially offset by the negative impact of PSAs of 47,000 barrels per day, mature field declines, facilities downtime in Norway, Kazakhstan and in China due to the harsh weather condition recorded in January, and lower gas uptake from Libya.

When compared to the fourth quarter of 2009, production was down by 70,000 BOE per day. This difference is mainly due to the positive one-off effect registered at the end of 2009 related to royalties received in USA, and to the negative effect of the facilities downtime recorded in January '10, as well as lower gas uptake from Libya.

Moving now to the economic performance, the first quarter [adjusted] operating profit of EUR3.1 billion, was up 44% compared to the corresponding quarter of 2009, mainly as a result of higher hydrocarbons realization in dollars, increased production sold and lower exploration charges. These positive elements were partially offset by high operating costs and the DNA, as well as by the appreciation of the euro versus the US dollar.

The overall gas volumes sold in the first quarter of 2010, including both consolidated and associated companies, decreased by approximately 6% year-on-year, totaling 28.9 billion cubic meters. The decline in volumes is mainly due to the increased competitive pressure in Italy, which was partially compensated by steady trends in sales on the European market.

Adjusted operating profit decreased by 7% compared to the same period of 2009, mainly as a result of lower sales and weakened markets. The first quarter adjusted operating profit doesn't include EUR21 million of gains from settlement of known hedging commodity derivatives associated with future sales of gas and electricity at fixed prices.

Gas and power adjusted pro-forma EBITDA for the first quarter of 2010 was EUR1.4 billion compared to EUR1.7 million in the first quarter of 2009. Results in the marketing segment declined by 28% mainly as a result of lower volumes sold, and the lower margins in Italy due to the increased competitive pressure, as well as the unfavorable trend in energy parameters.

These negative factors were partially compensated by the impact of the renegotiation of certain long-term supply contracts, as well as supply optimization measures. The regulated business generated EUR379 million, up 11% versus the first quarter of 2009. The increase mainly reflects the new tariff system that recognizes fewer gas costs and a higher volume transported.

Finally, international transportation, which for the time-being does still includes TAG, TENP, and Transitgas, showed as a result -- a result that's substantially in line with the first quarter of 2009. In Refining and Marketing, utilization rate declined to 70% in response to the weak trading environment. The first quarter recorded an adjusted operating loss of EUR94 million, compared to an operating profit of EUR55 million in the same period of 2009.

This loss mainly reflected the lower refining margins due to weaker relative prices of products to oil feedstock costs. Marketing activities delivered a weaker operating performance due to lower demand for oil products. In the first quarter of 2010, the results of the petrochemical business had improved with the operating loss, down to EUR59 million from the EUR111 million operating loss of the first quarter of 2009, driven by a recovery of demand for products and benefiting from cost savings.

In the engineering and construction sector, the first quarter adjusted operating profit amounted to EUR289 million, up 6% versus the first quarter of 2009. The other activities incorporated shows an aggregate loss of EUR122 million, versus a loss of EUR113 million in the first quarter of 2009. In the first quarter of 2010, operating activities generated cash flows of EUR4.6 billion.

On top of this, the proceeds are associated with the second installment of the disposal of sale in Energia to Gazprom, and those are associated for the sale of no (inaudible) upstream assets located in the North Sea, contributed EUR700 million, bringing the overall cash generated to EUR5.3 billion. The cash flow generated financed the CapEx of EUR2.8 billion, and even considering a negative exchange rate effect of approximately EUR400 million as a consequence of the appreciation of the US dollar in the period.

The net debt had been reduced by EUR2 billion. Accordingly, net financial debt as at the end of March, amounted to EUR21.1 billion, and the debt to equity ratio decreased to 0.39, when compared to 0.36 at the year-end. Thank you for your attention, and now together with Claudio and Domenico, I would be happy to answer any question you may have.

(Operator Instructions). The first question comes from Mr. Alejandro Demichelis from Merrill Lynch.

Yes, good afternoon gentlemen, two questions if I may. The first one is when you talk about this increased pressure on the gas market in Italy, both for volumes and margins, how much lower do you think that the market will stabilize for you? And the second question is, maybe you can update us on where exactly you are in the disposal of the North Sea assets?

Starting from the disposal of North Sea assets, as I have already stated in my presentation, those marginal assets have been already disposed of. The disposal process had been completed, and [directing] consideration has been already cashed in. So, nothing else are in our program, as far as the north [sea] are concerned.

In Italy, as you know, as well as in Europe, to where the -- this is correct, the first effect is the decrease of demand as a consequence of currencies. The second element is the access of our (inaudible), if our cost is putting pressure on the margins. So, what I can say is that we expect in Italy -- in our EBITDA in 2010 with respect to 2009, I hope that we could say it's [not] less than we had in 2009.

And looking beyond, what do you see now, I mean 2010? Do you think that the market will start stabilizing beyond that?

You know that the decrease in consumption of [in energy] in Europe has been around 6.6%, it would be considered the 27 countries. This decrease is in fact a combination of stable consumption in the [financial] sector, and higher decrease -- let's speak around [9% to 15%] in industrial sector, in the power generation sectors.

We are now seeing the sunshine of a recovery, probably you can say in energy Europe, we see increase of around 3%, 4% in the numbers, but we've taken, of course, a little bit of time before through the common (inaudible). I expected a bit of recovery that already started, will continue in the next three years, and it's my guess that in 2012, 2013 probably we couldn't go back it would be (inaudible) [eight] consumption levels.

Okay, that's very clear, thank you very much.

The next question comes from Mr. Iain Reid from Macquarie.

[Stream], for Claudio. Firstly, with the big increase in the pearl reserves, or Perla reserves, could you say what the development planning is for the field now? Could it potentially be an export facility, LNG or whatever? I think you previously said you were going to use the gas for developing your heavy oil facility there. And secondly, I wonder if you can update us on the situation at Karachaganak with respect to the negotiations with the government and the potential for phase III, thanks a lot.

So, first Venezuela, Perla, as I said last time, I think that the reserves are confirmed and higher than the expectation of last year, and at the moment we have a pilot project for domestic disposal of this gas, especially for power generation, and also as we said, for the existing upgrade and the gas injection. And for the future, the main [attention] will be made on the upgrader that we will be build for our Junin 5 project.

It's clear that we have additional gas. At the moment, we don't think about any LNG, because the demand in term of domestic industrial gas injection and downstream upgraders are absolutely enough to dispose of the gas we have at least in the short medium terms. Karachaganak, you know that we are discussing with the authorities, constructive discussion and inside the joint venture, and we are the first party, and we are discussing about the two arbitration process that we are ongoing, and also about other issue that I think is -- that we are in early stage, so I can't more than that.

Okay, then can I ask just one further thing? On the OPEC, there's obviously been a slippage in OPEC compliance. Is it something which you think is going to be permanent for the year now?

OpEx -- compare the OpEx of 2009, we have an increase. Our average OpEx in 2009 was 5.3, and now we have 6.3 more or less. And -- sorry?

(Inaudible - crosstalk)

Sorry, OPEC, I understood OpEx, sorry. Now, OPEC quarter -- in the first quarter is slightly less, is a minus 4,000 barrels per day, so, 1000 barrels per day that we consider flat all day, so I understood OpEx.

Sure, yes, okay. Great, thanks guys.

The next question comes from Mr. Jon Rigby from UBS. Mr. Rigby, please proceed with your question.

Yes, thank you. First is a follow-up on the gas market question. I appreciate we're very early into the year, but 1Q is obviously an important quarter. Do you feel more or less comfortable with the EBITDA guidance you gave at the strategy presentation, as you said right now, having seen how the first quarter transpired, and I guess that's particularly the issue for 2010 and 2011?

And then second question is just -- there has been some headlines rolling through on some changes to the liberalization of the Italian gas market, and particularly talking about caps on wholesale gas volumes. I was just wondering whether you were able to comment on that, whether it has any significant or material effect on the Eni or whether the sort of get-outs are within the plans that you already have? Thank you.

Well, a difficult question. The first -- during our strategy presentation, we said in fact, this is (inaudible), the next four years in the planned period, we will average December results that we made in 2009. I can still confirm that this [is our] target. Of course, it would mean, as I said before, that we'll have a lower result this year due to this competitive pressure that we would recover in the next year, when demand will recover.

On the second issue, we just know now, because this has been issued just today by the council of ministers that this new law on dividend (inaudible). We can not have, up to now, a clear indication during the (inaudible) factor, from what we understood there would be an impact on [Eni], but the impact is more in the sense that we will or we should build additional capacity in the [storage] system, but being paid, fully paid for this, and on the other side, if we would respect this is plan of increased storage capacity, we will be (inaudible) from that. But I (inaudible), I would consider effective volume in (inaudible).

Right, so just to clarify, you're saying that if the plans that you have for storage are sort of compliant with the requirements, you think that the ultimate effect on your business is quite low, as you understand it right now?

If would respect the plan, I would say that the so-called penalty is really minor in the period. Of course, this would be different if we do not respect the plan for building additional storage capacity.

Sure, yes. Okay, thank you.

The next question comes from Ms. Lucy Haskins from Barclays Capital. Ms. Haskins, please you may proceed with your question.

Thank you. Good afternoon gentlemen. Could I ask about the change in the oil price assumption that underlies your production guidance for this year, and whether that has any knock-on impacts in terms of your guidance on dividends? And also, if you could give a little bit more clarity in terms of where you might see that bit of volume guidance on your newer price assumption other than just the kind of slightly better than last year?

Well, we have reviewed, as it is already stated in our press release, that for 2010, we have updated our estimate with reference to US$76 per barrel. And as we have already stated during our strategy presentation, but however it is useless to say that the final decision will be taken by the board of director that we meet in July, as far as dividend of 2010 is concerned. But however, I would recall that as far as 2010 is concerned, we have already given a guidance to pay a dividend of EUR1 in 2010 inline with what we will recognize for '09.

But however, in the event the conditions, the present conditions will prevail also in the future, when we will prepare the new four-year plan in October, September-October, we retain the option to change the scenario assumptions and to repay the dividend, but dividend, I would like to emphasize, dividend that must be sustainable over the new four-year plan. So, we do not exclude this possibility, but we'll analyze the situation in September-October in preparing the new four-year plan.

Thank you.

The next question comes from Irene Himona from Exane. Ms. Himona, you can proceed with your question.

Yes, good afternoon. I have two questions please. First, could you give us some guidance for the full year depreciation charge and the average tax rate on your US$76 oil price? And then secondly, looking at the gas and power result, the EUR1.26 billion, and I'm sorry if you've addressed this already, can you identify the Forex effect in that? Thank you.

So, as far as the tax rate, the tax charge and tax rate is concerned, yes, for the E&P sector, we estimate to be able to maintain the same level -- at the same level of 60%, which is the tax rate which affected the first quarter result. We expect to maintain the same level of tax rate all over 2010. Then, your question was (inaudible - crosstalk).

Next question comes from Mr. James Hubbard from --

(inaudible) still has to answer.

Look, as far as the overall tax rate is concerned, is that [authority] feedback, considering that you can [group] taken as a whole, we are considering an increase all over the year by approximately 3%, but if by approximate 3% things, we are expecting that the E&P earnings that will prevail compared to the other earning generation. So, this is the reason why compared to what we have achieved in 2009, we are expecting an increase in average tax rate.

Then as far as DD&A are concerned, in first quarter '10, we had an actual figure of almost US$11, US$10.7 per barrel, and all over 2010, we expect a slight growth expecting to reach something more, US$11 per barrel. So, a slight increase in the remaining part of the year.

Okay, and the gas and power Forex effect?

As far as the Forex effect, we had a small effect in the first quarter, a limited effect in the first quarter '10, which was limited to EUR40 million compared to a more significant effect in the first quarter of '09, which was in the region of EUR170 million, because euro -- seems that we are covering the price of the gas for sure, that we had a more stable period in the recent past, and accordingly the effect of the derivatives that we have put in place in order to cover those transactions, the sale of gas and electricity for sure generated a lower amount compared to the first quarter of 2009, where the price fluctuation was significantly higher compared today with the present situation.

Thank you very much.

The next question comes from Mr. James Hubbard from Morgan Stanley. Mr. Hubbard, you can proceed with your question.

Yes, thanks. Two questions please, firstly on Zubair in Iraq, I guess you would have covered this in your upstream seminar which is coming in June now, I think, but just ahead of that, what should we be looking for over the next 12 to 18 months, for key developments in Zubair? What are your targets over that time horizon? I see some other holders of acreage in Iraq have already made substantial contracts abroad as regards drilling.

And then, in Uganda, there are reports that you are still looking at the country. I'm wondering are you soaking on Uganda that you're looking at the country as a hold outside of the acreage that the current incumbent players are just Taro owned or are you only interested in existing acreage?

Okay, first Iraq, Zubair. For the next three years, we have the rehabilitation plans. So, that means the bottlenecking of the existence of synergies. We have a target in the first two, three years to increase production from the existing production of about 200,000 barrels per day, to about first stage of 450,000 to after three years to 680,000 barrels per day. That is our rehabilitation planning, and meanwhile we are starting the full scale development, the full scale development that would bring us 1.2 million barrels of production.

And we already installed our people, we are working since February, and the bottlenecking already started. And we are also looking and awarding contract for [drilling] rigs through the SOC, because for the first year, we are not operating directly, but through our partners, SOC, the Iraqi company, state company.

So, for the other question about Uganda, as you know, we draw -- we drew then the option in January-February, it's clear that we are the first company in Africa, so we are always looking for new exploration activities and that are close to our operations. We operate in the area not far from that area in the west coast, and we are always looking for new possible exploration acreages. Meanwhile we are not looking at the Heritage or Taro asset that we will drill in January.

Okay, thank you.

The next question comes from Mr. Barry MacCarthy from RBS. Mr. Maccarthy, please proceed with your question.

Thank you. Just two questions, first a follow up on Zubair, if the activities on the ground, with your were people installed, as you said, since February, have those gone according to planned or according to your initial schedules? And the second question, Claudio please, what FIDs, what project FIDs you expect to take in, in 2010? Thank you.

Okay. So, I do the (inaudible) operation in Zubair are following the (inaudible) the first to appoint, the [1st of March] towards the deadline, production deadline that we took in February, and we have also started the first operation in the facility. So, I think that we are scheduled.

We could install and send the first people in the country. So, I think that we can respect this schedule and the programs of 2010. Also, if we started two months later, because in the first (inaudible) schedule, we thought to start in January, but at the end of the day, we started at the end of February.

But fortunately, because of all the work that we have done in Nigeria in the last two years, we had already a lot of installation people ready to start, so I think that we can -- and I'm sure that we can respect our target for 2010. Talking about the new FID for the 2010 --

(inaudible - microphone inaccessible]

Sorry.

Hello?

And for 2010, we have already taken the FID for [4T10], that is our Australia project, and we are going to take a second FID in Kashagan, that is our project that's in Algeria, the second project after the acquisition of First Calgary. With First Calgary, we acquired mainly two projects. One is the MLA, and the other one is Kashagan.

So, we are also going to also sanction the [Castrol] -- the Kashagan project. We are going to sanction the rehabilitation phase of Zubair, and also the (inaudible) announcement in Italy, in Jasmine and West Franklin. And also, for the Angola offshore, the block 15/06, the west [Alb] in Angola, and in Russia, [Sombosgrey], and in (inaudible) we tried also to have in Italy for every production, we schedule in (inaudible) for 2013, we are going to sanction the title project by the end of this year. That are the main projects for 2010.

Right, thank you very much.

The next question comes from Mr. Neil McMahon from Sanford Bernstein. Mr. McMahon, please proceed with your question.

Hi, I've just got three questions. The first is actually on market share associated with sales in terms of the Italian gas market. Do you get a sense that the Adriatic LNG terminal was operating at full capacity in the first quarter, so we can try and workout to see if you've got a situation of continuing declining market shares that is only ramping up. And secondly, on Angola, can you go into any more detail on the new discoveries you've had in Angola with regard to size since the flow rates are not fantastic, as with the fine for smaller Angolan wells. Thanks.

For the first question, the Adriatic LNG terminal, I would say, is operating nearly in full capacity. Last year (inaudible) capacity result, but all the (inaudible) expected of having an effect. And the fact of this, in fact we'll tell (inaudible) more gas in the market and with [less demand with sector reduction] on our market share in Italy. While we think about the volumes, we are failing abroad out of Italy, we will be able to stable all of EBIT [volumes].

Okay, so for Angola. Until that -- the Angola exploration, the block 15/06 is really a very successful story. We already drilled seven wells. I remember you that our first commitment in the first exploration phase was to drill eight wells. So, we are going to finish the first phase by June 2010, way in advance. So, practically 18 months in advance of the exploration or the first exploration phase.

We have discovered two in the -- we have discovered two [halves] in the East and the West side of the block, and we have really discovered more or less 1.3 billion barrels of oil in place. So, it's a remarkable discovery that we made. And the first half, as I told you, is ready to be sanctioned by the end of this year, and we try to fast track also the second half to be able to put in production the two halves by the end of this four-year plan by 2013.

So, that is possible because we are going to use all the synergies with the existing development that we have in Angola. So, I think that that is a very good story, and now we have to drill the last well in south, in the center of the block, and we plan also additional -- a private installation well in the southeast. So, I think that we're going to have a lot of satisfaction from these offshore blocks.

Great, thank you.

Next question comes from Mr. Neill Morton from MF Global. Mr. Morton, please proceed with your question.

Thank you, good afternoon, just the one question. It was actually on your CapEx. You've guided again to full-year 2010 figure of, of course, the EUR14 billion. If I recall from the strategy presentation that you were talking about the E&P spend this year being around a billion higher, so 10.5 versus 9.5 in '09. So, if that's higher, and group spend is roughly flat, I was wondering where the offset is coming from. Thank you.

So, the CapEx, the [annual] CapEx come especially from the new project, when you look at the new projects in terms of the oil projects. So, Zubair for sure is one project, because we are going to spend more or less 100% EUR600 million for the 2010 rehabilitation phase, but we have also additional spending in Venezuela for (inaudible) and [Peru], and also an additional spending in respect 2009 in Angola for the discovery that I mentioned before.

So, that is either way to accelerate the oil discoverers, and that is offset with other gas projects that we delayed, as I already said at the previous meeting, and gas project in Libya and gas project in Egypt, and also the phase III that has been postponed in Karachaganak.

Yes, sorry, the question was more if your E&P CapEx is going up by EUR1 billion, what is going down by EUR1 billion elsewhere?

I'm sorry, yes that is (inaudible) in that capacity.

Well, we have a -- since we wanted to maintain a flat -- we want to maintain our target that we have declared during our strategy. It means that the increased spending of E&P is compensated by the minor spending of other business like, predominantly something less is forecasted in R&M some million euros, and in engineering and construction segment. So, all in all, the reduction in the spending of this division compensates more or less the EUR1 billion spending of E&P.

Sorry, I didn't quite catch that. You were saying it's R&M and engineering?

Yes.

Combined?

Exactly.

I thought that -- I thought Saipem was indicating flat CapEx this year rather than a reduction.

You know, of course the materiality of the measurement of the spending for Saipem is different compared to us. So, for sure, as more difference, since we are talking about just EUR1 billion of additional spending of E&P. And when we say this amount is compensated, it's almost entirely compensated. Not entirely, it means that there is an imbalance on off a few hundred million euro, and accordingly the major spending is recovered in the refining and marketing, which is a -- spending is postponed to 2011 and also some millions euro less is forecasted from engineering and construction divisions. So, also Saipem is interested, not so material amount, but also Saipem is capable to deliver few millions euro of -- for minor CapEx.

Okay, thanks. Also, just to clarify, on the E&P CapEx you mentioned, would that number, the 10.5 include signature bonuses at Junin 5 and possibly Zubair as well in Iraq?

Yes, yes, that is included, the Junin 5 bonus, and also the Iraq, Zubair bonus.

Okay, great. Thank you very much.

(Operator Instructions). The next question comes from Mr. Domenico Ghilotti from Equita. Mr. Ghilotti, you may proceed with your question.

Good afternoon. I would like to have just a clarification on your tax rates for the full year's, because you mentioned an increase of around 300 basis points compared to last year. So, are you targeting around 59%, is it correct?

No, we are targeting more or less 56%

Okay.

Around 56%.

Okay

Since the adjusted tax rate of 2009 was in the region of 53%, it means that expected an increase by three percentage points. We expect all in all more or less 56%.

Okay, 56% is the guidance. Thank you.

Welcome.

Ladies and gentlemen, the call conference is now over. Thank you very much for your attention.

Thank you very much to everybody, and see you to the next conference call.