埃尼石油 (E) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Eni's 2011 first quarter results conference call hosted by Alessandro Bernini, Chief Financial Officer. For the duration of the call you will be in listening only mode. However, at the end of the call, you have the opportunity to ask questions. I'm now handing you over to your host to begin today's conference call. Thank you.

Good afternoon, ladies and gentlemen, and welcome to our first quarter results conference call. Before I take you through the financial results, let me give you an update on the status of our operations in Libya. As you will know, the situation in the country remains uncertain. So far the conflict has forced the shutdown of several of our producing sites, as well as the closure of the Greenstream pipeline. These shutdowns reduced production by 129,000 boe per day compared to the first quarter of last year, an impact which was partially offset by improved performance year on year.

Wafa is currently the only field in operation with an output that, as of April 1st, has been of about 50,000 boe per day, 55,000 boe per day, entirely destined to local power generation. This is down from a production of around 90,000 boe per day in early March. Each day in which production remains at current reduced levels will cause 600 boe per day decrease in full year average daily production.

We are constantly monitoring the progress of this highly volatile situation. Our assets have suffered no damage and we are technically able to resume production quickly once the situation stabilizes.

And now, on to our results. In the first quarter of 2011 the macro environment was positive compared to the same period of last year. The Brent price averaged $105 a barrel, up 38% compared to the first quarter of '10.

The average European refining margin Brent/Ural was $3.30 per barrel. While it remained depressed compared to historical trends, it was higher than in the corresponding period of last year.

Finally, the euro depreciated slightly versus the US dollar compared to the corresponding period last year.

Moving to our results, adjusted operating profit in the first quarter amounted to EUR5.1b, up 18% year on year. This result is mainly due to the strong contribution of the Exploration and Production which was partially offset by lower results in Gas and Power and Refining and Marketing.

Adjusted net profit for the fourth quarter was EUR2.2b, up 22% year on year. This result also reflects a lower adjusted tax rate down 2.5 percentage points to 50.5%.

In the first quarter of '11, Eni's hydrocarbon production amounted to 1,684 boe per day, a decrease of 8.6% compared to the first quarter '10. This negative operating result was principally due to the ongoing instability in Libya, which reduced production by 129,000 boe per day compared to the first quarter of '10.

Furthermore, PSA entitlements were negatively affected by the sharp increase in the oil price with an estimated impact of 32,000 boe per day. The increase in the oil price, however, boosted the division's adjusted operating profit, which amounted to over EUR4.1b, up 32% compared to the first quarter of last year.

In Gas and Power, overall gas volumes sold, including consolidated and associated companies, totaled 31.6 bcm, up around 9% year on year. However, adjusted operating profit decreased by 24% compared to the same period of '10, due to the sharply lower results delivered by the Marketing business.

Gas and Power adjusted proforma EBITDA for the first quarter of '11 was just over EUR1b compared to EUR1.4b in the first quarter of '10.

International transportation results showed a 4% increase. The regulated businesses generated EUR393m, up 4% versus the corresponding period of last year. The increase is mainly due higher returns of the new capital expenditures and efficiency actions.

Adjusted proforma EBITDA in the Marketing and Power business was negatively impacted by increasing competitive pressure in Italy and Europe, as well as unfavorable climate and scenario effects.

Furthermore, the ongoing situation in Libya reduced volumes to shippers and affected margins owing to the substitution of recently renegotiated Libyan gas with that from Russia and Algeria. It's worth reminding you that first quarter results do not include any benefits from renegotiations, although these will be retroactive once agreements are finalized.

Turning now to R&M. In the first quarter of '11, the division reported an adjusted operating loss of EUR148m versus a loss of EUR94m in the same period of last year. The poor performance reflected an unfavorable scenario due to high cost for all feedstock. The result was partially offset by the improved profitability of Eni's complex refineries helped by widening price differentials between sweet and sour crudes, higher pricing premiums for gasoline and gasoil compared to fuel oil. Utilization rates were up 9 percentage points year on year and refined also benefited from improved efficiency, the synergic integration of refineries, and optimization of supply.

Marketing was affected by a rapid rise in the cost of distillates that couldn't be immediately transferred to final prices and by lower retail sales in Italy. These negatives were partially offset by higher sales on European networks.

In the first quarter of '11 the Petrochemical business reported an adjusted operating loss of EUR12m compared to a loss of EUR59m in the first quarter of '10. This improvement was driven by higher selling prices, mainly for ethylene and propylene, only partially offset by higher feedstock costs.

Saipem delivered adjusted operating profit of EUR342m, up 18% versus first quarter '10.

Other activities and Corporate showed an aggregate loss of EUR129m, in line with the results reported in the first quarter of '10.

In the first quarter of '11, operating activities generated cash flows of EUR4.2b. The cash flow generated financed outflows of EUR3.1b, predominantly CapEx for EUR2.9b.

Net financial debt as at the end of March amounted to EUR25b, a reduction of EUR1.2b versus December '10.

The debt to equity ratio decreased to 0.44 when compared to 0.47 at the year end despite a negative translation difference.

Charge to equity of approximately EUR1.9b caused by the euro/dollar exchange rate reduced at the end of March.

Thank you for your attention and now together with Claudio Descalzi and Domenico Dispenza I would be happy to answer any questions you may have.

(Operator Instructions). First question comes from Mr. Barry MacCarthy from Royal Bank of Scotland. Mr. MacCarthy, please.

Good afternoon. I have two questions please. Thank you for your comments on Libya at the beginning of the presentation. I wanted to ask if you were aware of the condition of the more downstream equipment, if you like, from your fields, for example, the export terminals and so on, which you may not own but rely upon in order to get your oil to a purchaser, if those are in usable condition.

And the second question was on Venezuela, on the impact of the windfall tax. Firstly, is it right to think that Perla and gas generally is excluded, and how it might have an effect on your union prospect there? Thank you.

Okay, export terminal in Libya, at the moment, for what we've been reported, there is no damages and there is no problem. All the installations are on [halt] standby. That mean that they are running, and at the moment there is no problem.

For Venezuela, the new bill has been issued this morning, so we've had this morning the new bill and the new clauses. And the new project and the Orinoco Belt project are not subject until the recovery of the relevant investment to these taxes. So at the moment there is no impact on our assets, both gas and oil.

Okay. Is gas specifically excluded?

No, there is no mention together. Just mention to new project, new trench investment. So for the gas it is something that we have to go deeper. We got the text of the statement just this morning. But what we are sure about that there is no impact for our project, because also gas, also Perla, is a new project.

Thank you.

Next question comes from Mr. Alejandro Demichelis from Merrill Lynch. Mr. Demichelis, please.

Yes, good afternoon, gentlemen. Two questions. One coming back to Venezuela. Is the gas price situation with Perla concluded, or should we expect some more negotiations on that side?

The second question is on Angola and Block 15/06. We've seen you signing an MOU for the FP, so maybe you can give us some indication in terms of when you're expecting that project to be up and running, and what's the cost for that project?

Venezuela, again, the gas price agreed already so what we are working on is on the term sheet and the expectation is to sign the final document in September, October and after that we are ready to sanction the project. But we don't focus any problem, any additional renegotiation on the gas.

For Angola, the west hub of the [extension] and we start -- we are awarding the contract. I think that for the cost, the overall cost, normally we don't disclose all the cost there. We can say that the internal rate of the project is below the order rate. Now that we have most of the contract awarded in term of cost, we are matching the expectation so it's not absolutely far from what we expected and we said breakeven price is below the $50 per barrel.

Okay, that's great. And for startup, are you changing that at all, no?

No, the start up is always scheduled in the full year plan, so by 2014, '13, sorry.

Okay, that's great, thank you.

Next question comes from Mr. Jon Rigby from UBS. Mr. Rigby, please.

Yes, hi, thank you. Two questions. Just on the Gas and Power business and the Marketing business, I know at the strategy event in March you said that 2014 for a normalization of earnings but flagged that actually the conditions had already begun to look like that could be earlier and then clearly we've had a subsequent tightening of the market. So would it be -- would you be able to characterize how you'd expect those changes in the market to start to impact your earnings across the balance of 2011? Aware I know that you renegotiate a lot of your marketing contracts in the summer and early autumn.

The second question is on the recent Skrugard discovery in Barents. I noted that there was a licensing round awarded just after that discovery. And I wondered if I could ask Mr. Descalzi whether he was happy with what he got and whether applications for those licenses were done with the knowledge of, or with the expectation of what you would find on that discovery. Thanks.

Well, for Gas and Power, I would say the situation is not yet completely clear. Of course, we expect some consequence of the events in Japan, from the nuclear decision taken in Germany, but really it is too early to understand how this could influence the overall market situation. So what we can say at this stage is that we reconfirm our guidance on having a flat result in respect to the past [year] we had last year.

Okay.

On Norway, I think that we are absolutely happy about what we have. We are absolutely happy about the result of Skrugard. That is -- that can be considered one of the best discovery in the last 20 years in Norway and that came after Goliat and other discoveries that we made.

That is not new, because we started our exploration in Norway in the Barents Sea in '91/'92. So we had a rate of success of 70%. And the two recent licenses that has been issued by the government is really to recognize the effort in terms of the investment and good result we got in the last years. So I think that we are absolutely happy. And we think that Barents Sea will be very, very important hub in the North Sea.

Thank you.

Next question comes from Mr. Alastair Syme from Citi. Mr. Syme, please proceed with your question.

Good afternoon. Just a very quick question on E&P gas prices. The realization dropped versus fourth quarter, and I might have missed it in the prepared comments. Is that a mix effect or is there something else going on there?

I think that in the first quarter we report an increase of 5% and is less of the expectation due to the effect of the Libyan gas. So that is the only reason. Otherwise the reason, it would increase in respect to 2010.

Yes, but my comment was there was quite a drop versus fourth quarter pricing. I agree year on year there was an increase, but the quarter on quarter.

The first quarter is due to Libya, the drop. The drop that we have in the gas utilization, nothing changed. We talk about our equity production gas.

Right, okay. So it's exclusively looking at [them]?

Nothing changes. It is in Egypt, Nigeria and also in the rest of our gas production in Norway, everything's -- I think it is absolutely in line with the previous month and the only really drastic change has been in Libya. That's all. And that's (inaudible).

Okay, thank you.

Next question comes from Miss Lucy Haskins from Barclays Capital. Miss Haskins, please.

Thank you. Good afternoon, gentlemen. Two questions, please. The first is if we assume Libyan exports are kept off the market for the remainder of this year, what would the tax guidance, the tax rate be for the year?

And the second question is obviously you're trying to put some self-help programs in place in your downstream business. But I just wondered if there's anything super-remedial effectively that you can do to stem the losses that we saw this quarter?

Okay. For us -- the tax rate, the expectation is that there is a reduction. A reduction of the tax, the average tax rate for the E&P, because of the high tax rate in Libya that is 55%. So we're going to average it. There will be a reduce of 2 points.

Sorry, a reduction of 2 points?

A few points.

A few points?

This is as far as the E&P business is concerned. Then on a global basis, on a consolidated basis for the Group taken as a whole, we do not expect any major changes compared to '10 because their reduction of the tax burden in the E&P business is compensated by the major incidence of the E&P results on the global results of the Group.

So you know what the E&P earnings are normally affected by a higher tax charge. And since the E&P business will represent the most important part of the earnings in '11, this will result the combination of lower tax rate for E&P and higher in incidence of the E&P business as a result of this effect with -- there will be no major changes compared to '10.

Okay, thank you. And then the issue on the downstream, again in this -- the higher price environment that you are now envisaging, what do you need to do in order to try and correct the losses?

Sure. We do not expect any major changes also in the downstream business, in particular in the Refining business for the rest of the year. What we have experienced in the first quarter in terms of oil prices will remain more or less the same for the rest of the year, apart from a limited effect generated by the seasonality of our business. But however, the difference all over the year is negligible. So we do not expect any major changes also for the rest of the year.

So you don't expect any improvement in your downstream profitability for the remainder of the year?

In the Refining, the pure refining, no, we do not expect any major changes, since we report with Marketing business, we expect that the commercial, the Marketing segment will be capable to recover in the remaining part of the year. So, all in all, putting everything together, we expect a slight improvement, but in particular in the Refining, I repeat, in the pure Industrial Refining business, we do not expect any major change.

Thank you.

Next question comes from Mr. Theepan Jothilingam from Morgan Stanley London. Mr. Jothilingam, please proceed.

Yes, thank you. Good afternoon, gentlemen. Just a quick question on Greenstream. Could you just confirm, or give us an order of magnitude on what the impact of the shutdown at Greenstream would be for Q2 and the rest of the year?

And then secondly, just on CapEx and investment in Libya, I was just wondering if you could give us again just guidance on what type of investment levels you expected in Libya pre the disruption.

And then thirdly, how many exploration wells did you have planned in your program for Libya? Thank you.

However, in terms of Greenstream, you know that we don't want to disclose any major information relating to the effect caused by the shutdown of the Greenstream pipeline.

Of course, in order to give a detail on information it will be necessary to disclose a sensible commercial information and we don't want to release such sensible information.

As far as CapEx for Libya --

So I think that we didn't focus any big CapEx for Libya in the (inaudible), just in 2011. For 2011 we had just $200m, $250m for small investment, we can say. And we shifted this investment for production optimization in other countries to compensate what we are losing on Libya.

And exploration. Exploration in Libya, we now be -- we are under force majeure for all the relevant contracts. We don't have a lot of big efforts, exploration effort in Libya. We drilled the exploration wells in the offshore in the last two years, couple of years. So we -- just a few wells in the desert, one or two wells, but now we are under force majeure. But we don't have any big exploration campaign in Libya for the future.

If I can go back for the moment to the first question, we offered all the clients taking the Libyan gas other gas from other sources. Most of the customers accepted this offer, which means that we are taking more Russian and more Algerian gas to supply them. So we're effective there, but we are trying to compensate a little bit this affect.

Hello?

Are there any more questions?

No more questions at the moment. (Operator Instructions). Next question comes from Mr. Domenico Ghilotti from Equita. Mr. Ghilotti, please.

Good afternoon. Could you provide the breakdown in R&M between Marketing and Refining contribution, also to better understand the evolution based on your guidance?

In terms of results achieved by the end of March, you can consider that predominantly the loss has been generated almost entirely by the Refining business whilst the Marketing activity has delivered more or less a breakeven situation. And I believe that is enough.

Okay, so the improvement is starting from a breakeven point, and while you're expecting Refining is still weak?

For sure. What I would say to the Marketing, in particular, segment is affected predominantly by seasonality. It is quite normal to have a low level of activity, volumes, and earning generated in the first quarter of the year and we expect the recovery in the -- in coming months.

And the last question is on the disposal of the international pipelines. Can you give us an update on the timetable?

Yes, yes. You know that we are disposing three pipelines, the TAG, the TENP and Transitgas. As far as TAG is concerned, we are discussing with the Casa Deposit authority and we are confident that we'll be able to close everything in -- over the next few weeks.

And as far as TENP and Transitgas, their situation is a little bit more complicated due to the process that we have selected for the disposal. Now we have opened the data room. We have given access to the data room to few selected bidders. Then we expect to receive their binding offer within the end of next week. After that we will select those bidders, those entities, with whom we will start negotiation on exclusivity basis and we are confident also for them to be able to close the deal. This will require some more time. So we are targeting the second half of '11 for the closing of the two transactions.

Okay, thank you.

Next question comes from Mr. Dario Michi from Banca Akros. Mr. Michi, please.

Good afternoon to everyone. Could you please give us some details on Galp, the possible disposal of your stake? There are rumors that Angolan investor could take 25% direct stake on the company?

Well, you are referring to some press speculation and we do not comment this type of speculation. What we can say is exactly the same situation that we have already communicated to the market over the last few weeks, meaning that we have received a sum also receipted offer. Now we are examining those proposals. Of course, this activity is done in coordination with the other partners, in particular with the Portuguese government. But as you know, today, due to the crisis of the Portuguese government, we have to stop to, to interrupt this process.

So we are estimating that it will be necessary some more time, but we are confident that in the next few weeks to be able to resume this activity, and be capable to identify the final solution within the end of the year.

May I go ahead, sir?

Yes, you may.

Next question comes from Mr. Kim Fustier from Credit Suisse. Mr. Fustier, please.

Good afternoon, gentlemen. I just had a couple of quick questions both on Gas and Power actually. Firstly, you said you're offsetting the low availability of Libyan gas through other supply sources, and I think you mentioned Russia and Algeria. I'm just wondering if you're able to quantify the contribution of these supply sources, not just between Russia and Algeria but also possibly any gas you're taking from the North Sea, LNG, and also your own storage?

Secondly, I'm just wondering how the current Libyan situation changed your negotiating position vis--vis your major gas suppliers such as Gazprom and Sonatrach. Thank you.

Well, for the first question, I would say that normally we offer to our customers gas from our portfolio if you need a [faster cost], because if you have only gas from Algeria and from Russia, but in fact it's gas from our portfolio. That you know is one of the most diversified portfolio any other company in Europe has.

The second question is did we make some consequence of the fact of Libya in our negotiations. Up to now, this has not been a question. Nobody raised this problem. Of course, the consequence of having less Libyan gas on the market could have some impact on the overall market situation, but this item, this fact, has not been causing to our negotiation both with LG and Gazprom in Russia.

Are there any more questions?

No more questions at the moment. (Operator Instructions).

So, if there are no other questions --

The control room confirms there are no more questions.

Okay. Thank you very much for your participation, and see you at the next quarter results presentation.

Ladies and gentlemen, the conference is over. Thank you for calling Eni.