埃尼石油 (E) 2011 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Eni's 2011 third quarter results conference call, hosted by Alessandro Bernini, Chief Financial Officer. For the duration of the call you will be in listen-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 third quarter results conference call.

The third quarter of '11 was characterized by a significant progress on our strategic goals. In particular, the situation in Libya is evolving positively. The Abu-Attifel oilfield was re-started and we have re-opened the Greenstream pipeline on October 13. Our initial volumes are small, but we expect to ramp these up over the next two months, and into the first quarter of '12, along with the re-start of the large Bahr-Essalam offshore gas field, expected before year end.

Overall, the recovery of our activities in Libya has enabled us to slightly reduce our estimate for the negative impact of the crisis on full-year production.

We have also continued to deliver excellent exploration results, of which our recent discovery in Mozambique is the stand-out example, both in terms of size and because it opens up a new frontier for us in East Africa.

We have made good progress on our development projects, in particular taking the FID for the Samburskoye field in the Yamal Peninsula, putting us on track for start-up in '12.

Just to give you an update on gas renegotiations, our discussion with Sonatrach have been positive, and we are close to reaching a mutually satisfactory conclusion. Our discussions with Gazprom are progressing and we have seen evidence of an increasingly constructive dialog. While it is difficult to be deterministic about the timing of a deal, we remain confident about the outcome.

But now let me give you a detailed overview of our Q3 results. In the third quarter of '11 the macro-environment was mainly positive. The Brent price averaged $113 a barrel, up 48% compared to the third quarter of '10. Meanwhile, the average European refining margin Brent/Ural, was $2.9 per barrel, still weak compared to historical levels, but showing an 18% increase year on year.

The euro dollar exchange rate moved unfavorably compared to the corresponding period of last year, with the euro appreciating around 10% versus the dollar.

Moving to our results, adjusted operating profit in the third quarter amounted to EUR4.6 billion, up 12% year on year. This result is due to the improved performances of the Exploration and Production, Engineering and Construction, and the Refining and Marketing businesses, partially offset by the lower contribution of the Gas and Power division, which doesn't reflect any benefits from gas contract renegotiations, and the negative result of the Petrochemical business.

Adjusted net profit for the third quarter was EUR1.8 billion, up 7% year on year. Notwithstanding a higher adjusted tax rate, up by almost 7 percentage points to 57.6%. The recent upward revision of the so-called Robin Tax decreased the net profit by EUR130 million in the third quarter, of which EUR80 million pertaining to the first half of '11.

In the third quarter of '11 Eni's hydrocarbon production amounted to 1,473,000 barrels of oil equivalent per day; a decrease of about 14% compared to Q3 '10. Lower production was mainly due to the ongoing instability in Libya, which reduced the production by approximately 200,000 boe per day.

Furthermore, [ESA] and PSA entitlements were negatively affected by the sharp increase in the oil price, with an estimated impact of 37,000 boe per day.

The increase in the oil price, however, boosted the division's adjusted operating profit, which amounted to over EUR3.9 billion, up 19% compared to the third quarter of last year. This positive result comes in spite of the negative impact of the US dollar depreciation amounting to around EUR200 million in the quarter.

In Gas and Power, overall gas volumes sold including consolidating and associated companies totaled 17.3 bcm, roughly in line with last year. However, adjusted operating profit decreased by 20%, compared to the same period of '10, due to the sharply lower results delivered by the Marketing business. It's worth reminding you that the results do not include any benefits from the renegotiation of our long-term supply contracts, although these will be retroactive once agreements are finalized.

Gas and Power adjusted pro forma EBITDA for the third quarter of '11 was EUR550 million, compared to EUR675 million in the third quarter of last year.

International transportation results showed a 4% decrease, while the regulated businesses generated EUR388 million, up 5% versus the corresponding period of last year. The increase is mainly due to higher returns of new investments and efficiency actions, as well as the positive impact on the distribution business of the new tariff regime, set by the Authority for Electricity and Gas.

Adjusted pro forma EBITDA in the Marketing Power business was negatively impacted by increasing competitive pressure in Italy and Europe, as well as unfavorable climate and the (inaudible) effects. Furthermore, the ongoing situation in Libya reduced the volumes to shippers and affected margins, owing to the substitution of recently renegotiated Libyan gas, with other sources of supply, not yet renegotiated. These negatives were partially offset by the positive outcome of Distrigas renegotiation of a long-term supply contract with the Netherlands.

Turning now to R&M, in the third quarter of '11 the division reported an adjusted operating profit of EUR26 million, versus EUR14 million in the same period of last year. The Refining business slightly improved results, due to a better ratio of prices of the main distillates to the cost of the crude feedstock, and the widening spreads of gasoline and gasoil compared to fuel oil. These positives were particularly offset by rising oil-linked costs for plant utilities.

Marketing activities posted a positive result, although lower than Q3 '10, due to declining fuel consumption, a different mix of volume sold, and increased expenses related to promotional initiatives.

In the third quarter of '11, the Petrochemical business reported an adjusted operating loss of EUR80 million compared to a profit of EUR31 million in the third quarter of last year. The result was negatively impacted by falling product margins with the cracker margins severely hit by higher supply costs of oil-based feedstock, which were not fully recovered in sales prices or end markets, as well as a substantial decrease in demand.

[Site] delivered an adjusted operating profit of EUR333 million, up 5% versus Q3, '10, mainly driven by higher results in onshore construction and offshore drilling operations.

Other activities and corporate showed an aggregate loss of EUR146 million compared to a loss of EUR93 million reported in the third quarter of '10.

Cash flow from operations was EUR11.2 billion in the first nine months of '11. Proceeds from divestments amounted to EUR334 million, including small non-strategic upstream assets and the sale of gas distribution activities in Brazil.

The cash inflows were used to partially fund the cash outflows relating to capital expenditure of EUR9.5 billion and dividend payments of EUR4.1 billion, which included the payment of the interim dividend for '11 made in the last week of September.

Net financial debt as at the end of September amounted to EUR28.3 billion, and the ratio of net borrowings to total equity stood at 0.49. The net debt at the end of September doesn't include the cash in from the announced disposal of the international pipelines, nor the investment for the acquisition of Nuon Energy and an additional stake in Elgin/Franklin, which we expect by year end.

Assuming an average Brent price of $111 per barrel for the full year '11, and the benefit associated with the ongoing renegotiation of gas supply contracts, the debt to equity ratio expected at the end of '11 will be lower than in 2010.

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). Alejandro Demichelis, Merrill Lynch.

The first question is on the Mamba South discovery. Maybe you can talk to us, how do you see that going forward? And also in terms of size of Mamba North, should we assume that that's going to be of a similar size?

And then a follow-up, maybe you can tell us what you're thinking in terms of how do you think about unitization and potential development of this field?

Mamba, we plan to drill additional four wells. As [you] said, the next well will be Mamba North. We think the Mamba North will not have the same dimension of Mamba South. Mamba South is a bigger discovery, more than what we expected, but we think that by the end of 2012 we can increase these resources.

I cannot talk now about unitization, because we didn't talk to Anadarko yet. But I think that part of the field that has to be unitized and part of the structure are not overlapping Anadarko block. So it's not the case for all the blocks.

You mean the deeper discovery does not overlap with Anadarko, or do think that the upper zone does not overlap?

No, we talk about in general. Unitization, as you know, is a very sensitive issue, and I don't think that it's very wise to talk and disclose anything about unitization before talking with Andarko, with the Government, so I prefer don't talk about unitization now. We are still drilling the well.

Okay, that's great. Thank you.

Nitin Sharma, JPMorgan.

Two questions please, if I may; first one on Gas Marketing business. This is the second consecutive quarter where you've reported operating loss for this business, and the reason, clearly, is these ongoing negotiations with Gazprom and Sonatrach. Could you please quantify what sort of financial impact culmination of these negotiations would have, and, if possible, a timeframe? I know you guided to an early completion, but would that mean by end of Q4?

And the second one is in relation to the guidance that you've given on production year on year, 10% decline. Now that guidance is based on additional volumes from resumption in Libya. My question is what level of production are you assuming in Q4 from Libya? Thanks.

Well, for gas, we had quite a busy month last one, because we closed the (inaudible) small contract -- supply contract. We closed, I would say, in quite a good way, being selling contract -- a long-term selling contract.

What remains still to be done are these two main contracts with the Sonatrach contract and the Gazprom contract. On the Sonatrach contract I could say that I see [it is] developing quite well, relatively well I would say. So I expect that a conclusion could be reached within this year.

For Gazprom the situation is not, in fact, the same in the sense that we are still negotiating with them. There are progress, but we are not yet at a stage at which we could consider the closing quite near.

I cannot, of course, comment on the overall impact of the negotiations, but I could remind you that we said -- we confirm today that the -- if we would consider a part, of course, the impact of the Libyan situation -- the Libyan crisis, the result should be -- if the negotiation will be completely in line with what we expect, the final result would be broadly in line with the [draws] of last year.

For Libya, the expected average contribution of Libya production in Q4 is about 120,000 barrels per day, and the impact of the shutdown in Libya for the full year 2011 is roughly 190,000 barrels per day.

Thank you.

Jon Rigby, UBS.

Two questions. One on gas again; can you -- are you able to estimate, or give us some sort of estimate, of what you think the absence -- well, not just gas, of Libya was a) on your Gas & Power business, i.e., the absence of that cheaper gas?

And also, I think you mentioned in the second quarter that it also had a negative impact on both your Refining and your Petrochemical businesses with the absence of optimized feedstock. Are you able to give some sort of economic -- calculation of the economic effect there?

And can you just confirm that the discovery that you're talking about in Angola, Lira, is that potentially a third pole on [1506]; is that correct? Thank you.

For the gas I could say that we estimate a kind of -- around EUR300 million is the overall impact of the lack of Libyan gas on this year. Of course, looking to the news that are coming of the gas is still filling the [greenstream], and we should expect (inaudible) coming-- well, quite near -- next future, would be more opportunistic for the next year.

As far as the effect of Libya on the other businesses, Refining and marketing and Petrochemical, let me say that the effect on the results of those business lines is negligible, is limited to a few million euros. And we confirm the estimate that we have already provided in the first month of this year.

So Lira in Angola, we confirm that is a very good discovery. It's mainly gas and condensate. We need additional one or two wells to define and appreciate clearly the dimension of the discovery that at this point is really big in terms of gas. I think that can become a third hub, but more on the LNG side, and with some good production of condensate. But I think we'll be able to be more clear about this project I think in 2012 -- during 2012.

Just as a follow-up, so would that be something that would naturally fit into your Angola LNG2 project that you have?

Lira, for sure, as you know we have a joint venture with Sonangol for gas, for a second possible LNG. We already made some good discovery with Sonangol; we discovered about [2.5 bcf], and that would be an additional gas. And for sure, with Lira and with what we discovered, we can already have a possibility to develop a floating LNG, or an additional train.

But, as I told you, this issue is also connecting to the joint venture that we have in the Block 15/06. So we cannot extrapolate more and elaborate more on this subject.

Thank you.

Alastair Syme, Citigroup.

Could I just ask about where we're at on Iraq in terms of production levels, because I don't really understand if we're still ramping up or whether investment levels have slowed?

Well, Iraq now there is production; now is about 240,000/245,000 barrels per day. So we've reduced the average production in Iraq, the gross production.

And the reason that we said already in the first half is because there is some bottlenecking in the contracts. So we have not been able to award all the contracts we forecast in 2011. So for that reason, the production is going down. We think that it's just a temporary situation and we are in the transition phase. And we are confident that we can restart the ramp up, the production ramp up, in 2012.

Could you perhaps guide to where you think production might average through 2012?

The average production in 2012, our forecast is between 350,000/400,000 barrels per day.

Thank you.

Gross production.

Theepan Jothilingam, Nomura International.

Just some follow-up questions on what we've talked about before. Just on Mozambique, is it possible just to give us any rough estimates of what you think recovery factors would be for the discovery?

Secondly, just on Libya, is it right to assume that you just see a ramp up in the condensate alongside the gas?

And then just lastly, you are a little bit light in terms of the run rate on CapEx. Again, would it be right to assume that there is just a simple rollover in the CapEx into 2012 and we should assume a higher number for 2012? Thank you.

Recovery factor for Mozambique, as I said, we are still drilling this well. Already, we have some core. And so we know -- the lithology in that for -- and the geophysics for this kind of environment, the average could be between 65% and 85% or 90% of a recovery factor. So that is the average that we have in our statistics. But, as I said, that is a broad range, because we are really still in an early stage.

For Libya, yes, increasing the gas production, we are going to increase also the condensate.

And third, for the CapEx, I don't think that we'll have a strong increase in our CapEx in 2012, because it is just a question of commissioning and some additional maintenance program, but it's more OpEx than CapEx.

Thank you.

Lucy Haskins, Barclays Capital.

Could I ask, it's a nice turnaround in the Refining and Marketing business. How much would you see -- has that been just a normal seasonal pattern in terms of the driving season within Italy, and how much is actually the self-help measures starting to feed through?

And then perhaps on the flip side, Chemicals perhaps is a little lighter than we might have expected for the quarter, what's the underlying challenges there? And, again, what can you do to address those issues?

Yes, you are right, the positive result in the quarter of the Refining business must be considered a sort of temporary positive effect, unfortunately, because in the quarter, in particular, the Refining margin in the Mediterranean has expressed some improvement. But at the end of the quarter and already in October, the result has slightly worsened. So it can be considered only a temporary positive effect.

On the other side, what is -- for sure, will be maintained also over the next period is the efficiency that we are pursuing through a lot of our initiatives that partially have been already completed and partially are still ongoing. So we are dedicating a lot of our efforts to the efficiency process and through these initiatives, we have been already succeeding in obtaining a significant cost saving in the Refining business.

Then, as far as the Marketing business is concerned, for sure, you know the summer season is quite important for this type of business, in Italy in particular. And effectively, the margins that we have realized in the period relate to this seasonal effect. So, in the incoming quarters, we expect to be able to maintain more or less the same positive result in the Marketing business, even if associated to lower volumes, whilst in the Refining, we are a little bit negative for the future.

In Petrochemical, Petrochemical business, in particular, you know that we are engaged in the production of a different line of products. Some of them are maintain -- in particular the (inaudible) are maintaining very good results, whilst the massive production of our Petrochemical system is -- unfortunately, there is a significant decrease in the demand. And, accordingly, the volumes of the production have decreased significantly during the quarter. And we are also for this segment a little bit negative also for the last quarter of this year.

However, also in the Chemical business, you know that we have launched a number of initiatives, one of which is the conversion of our Porto Torres industrial site into a production of greener products. But, of course, the production and benefits will come on stream only in the coming years because the development will require at least one year to enjoy the first level of production.

Thank you.

Oswald Clint, Sanford Bernstein.

Could I just get some confirmation or level of detail on the gas price that Gazprom has committed to to purchasing your volumes from Samburgskoye field? And at which point in 2012 should that field start up? Is it the first half or the second half?

And then secondly, just on Libya, I'm just curious if you have actually restarted in any oil wells yet. I'm just curious that they're coming back on line in line with your expectations and that's focused on the oil wells?

So for Samburgskoye, the start-up is forecast for the first half 2012.

The gas price is a mixture; it's mixed between gas domestic price and export. And we think that they can convert for 2016, because there is an annual increase.

For Libya, yes, we start one big oilfield, [Abu-Attifel]. And by the third week of November, we'll start [boring], that is an oil offshore field.

Okay, thank you.

Iain Reid; Jefferies & Co.

Claudio, could you update us on the status of Kashagan, in terms of how far along the project plan are you now?

And maybe also give us some information about what the well flow rates have been when you've been testing them. And perhaps also what you think the final CapEx might be for the whole project. And, if possible, any updates on any progress on Phase 2?

So the progress on the experimental phase to Kashagan commercial production, we reach 96.4%. And that is in progress update mid-October. So we are absolutely -- and we are ahead of our schedule. That is the third month that we are ahead of schedule. And we think that we can reach 98% by the end of this year. So we are still on track, ahead of our schedule to reach the production in 2012.

From a production point of view, I think, that it is no problem. The well has been tested, not now, before. And we drill 21 wells, we have to drill 40 wells for the experimental phase. The drilling is ongoing, but is continuing after the first production. And each well is absolutely -- is a production absolutely enough to reach the first production that is 70,000 barrels per day, with a build-up on the first year to reach, at the end of 2013/beginning 2014 370,000 barrels per day.

For cost, the [right] cost -- development [right] cost is something we are discussing. The project's not finished. I think that in terms of CapEx -- direct CapEx for the development, we are not very far from our target. That is what I can say at the moment.

And on Phase 2, anything moved on that?

Well, Phase 2 is under -- the Phase 2 is not our direct responsibility. It's still under study, because we needed -- you know that we stop -- suspend it for a while, because we needed to optimize costs.

I think that once we will have reached the first production, the KCP for the first phase, we'll think about the second phase. But for sure, the first phase has a lot of investment, a lot of synergy on the Phase 2. So I don't have any doubt about the Phase 2. I cannot tell you now exactly the date but I think that there is no doubt about the Phase 2.

Okay, thanks.

(Operator Instructions). The control room confirm there are no more questions.

Great, well thank you very much, in which case we'll end the call here, and if you've got any further questions, do come back to us on the investor relations number. Thank you.

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