埃尼石油 (E) 2013 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. And welcome to Eni's 2013 first quarter results conference call hosted by Massimo Mondazzi, 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 hosts to begin today's conference. 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 a summary of the main highlights of the quarter.

In E&P production was impacted by a number of temporary issues, mainly Libya and Nigeria. In Libya, while the situation remains challenging, production has been restored after the shutting of Mellitah and now we are back in the region of 260,000 BOE per day. In Nigeria, we have repaired pipeline damage in the last year floods, although force majeure in the swamp area remains in place.

With fourth quarter disruptions now largely resolved and assuming no further shuttings, we confirm full-year production guidance. Growth will be driven by our expected start-ups and ramp ups, which are broadly on track. At the same time, we have continued to consolidate our long-term growth prospects. Exploration and discoveries amounted to around 600 million BOE of resources and we have secured promising new opportunities, including our shale gas block in China.

In gas and power, first quarter results reflected the deteriorating competitive environment. In Italy, demand has continued to fall by 5% in the quarter, driving our prices lower than those in Northern Europe. Meanwhile, our supply costs do not yet include the expected benefits of negotiations.

On the positive side, we are performing well in Brazilian segments, such as LNG, retail and new structure products. And supply side negotiations are progressing constructively. We continue to expect to close a significant part of them in 2013. On this basis, we confirm our previous guidance of full-year EBITDA in line with the underlining 2012, which as you may recall, was not a positive number.

The downstream businesses have shown improved result from the combination of cost efficiencies, margin announcement initiatives and slightly better benchmark margins, although demand for refined products and chemicals remains weak.

And now, onto our results. In the first quarter of 2013 the market environment was mixed. The average Brent price was at $112.6 per barrel, slightly up versus last quarter, but down 5% year-on-year.

Refining margins remain volatile. The Brent/Ural margin rebounded to $4.30 per barrel, over 50% higher than last quarter and 32% higher year-on-year, but still below breakeven levels. The euro appreciated versus US dollar and was at 1.32 for Q1.

In the first quarter of 2013, Eni reported adjusted operating profit of EUR3.79 billion, down 36% compared to Q1 2012, excluding announced contribution in a like-for-like comparison. The decline was mainly due to E&P, which delivered lower production volumes in a weaker pricing environment in gas and power, where year-on-year comparison was affected by holding sale prices and oneoff gain recorded in the first quarter 2012.

Adjusted net profit on the first quarter 2013 amounted to EUR1.43 billion, down by 39%, excluding Snam contribution, driven by a weaker operating performance and the expected increase in the consolidated tax rate up to by 5% respect to the biggest period, mainly reflecting the (inaudible) contribution in E&P to group results.

Turning to E&P, in the first quarter 2013 Eni's liquid and gas production was down by 4.9% year-on-year to 1.6 million BOE per day. As well as the temporary disruption in Libya and Nigeria, the year-on-year comparison is affected by the shutdown of the Elgin-Franklin field in UK, which was started in March 2013, the impact on the (inaudible) in Galp disposals and unplanned facility downtime.

These decreases were partially offset by continuing production (inaudible), particularly in Russia, Egypt and Angola. And in Q1 we also saw the (inaudible) in Algeria and Venezuela, providing us more contribution in the quarter but paving the way for future ramp-ups as well as lower production volumes. E&P operating profit was affected by lower average (inaudible), down by 7.7% in dollar terms.

Unit operational costs were higher, also reflecting the temporary shortfall in volumes, leading to an adjusted operating profit of EUR4 billion for the quarter.

And now gas and power. In the first quarter of 2013, despite the contraction in European demand, Eni's gas sales of 29.5 billion cubic meters were in line with the first quarter of 2012, excluding the impact of the Galp disposal. Sales volumes in Italian market amounted to 12.5 billion cubic meter, an increase of 3% for the same quarter a year ago. Higher volumes sold to wholesalers and [added] up more than compensated lower consumption by industrial and retail clients, fed by the economic downturn. Sales in Europe fell by 7%, net of the disposal of Galp, while sales outside Europe were strong, driven by LNG in the Far East.

In the context of broadly stable volumes, marketing results declined significantly owing to the increased competitive pressure and the retroactive portion of the Gazprom negotiation included in the third quarter 2012.

Turning now to international transport, operating profit was down by 15% reflecting lower transported volumes. Overall, gas and power reported an operating loss of EUR148 million compared to a profit of around EUR1 billion in the first quarter of 2012. As you may recall, a number of our gas and power activities are not consolidated in the EBIT.

Income from this associated in the first quarter amount to EUR30 million compared to around EUR100 million the first quarter of 2012. This reduction reflects reduced (inaudible) gas profitability owing to the shortage of [cheap] gas (inaudible) in Egypt and the impact of Galp disposal.

In the first quarter of 2013 the refining and marketing business reported an adjusted operating loss of EUR152 million, an improvement of EUR72 million on the first quarter of 2012. In refining, throughputs continue to be low, driven by the partial temporary closure of the Gela refinery as part of our strategy to contain over capacity. Improved results reflected recovery in refining margin in the Mediterranean area and continued progress on our efficiency target.

With regard to marketing, volumes were impacted by continued declining oil product demand, minus 6% versus the first quarter of 2012. In this context, results benefitted from an increased focus on margins in our retail and wholesale segments.

Versailles reduced its adjusted operating losses to EUR63 million in the first quarter, a significant improvement from the EUR169 million loss in the same quarters last year, thanks to higher cracking margins and early benefit from the restructuring plan.

Engineering and construction segment reported a lower adjusted operating profit, which was down by 46% to EUR204 million. Other activities and corporate results were broadly in line with those of the first quarter of last year with an aggregate loss of EUR157 million.

Net cash generated by the operating activities amounted to EUR2.8 billion. It was impacted by working capital movement for EUR500 million, reflecting increased commercial credits, particularly in [siphon] and gas and power. This is partially a seasonal effect driven by the gas and power retail segment. That said, we confirm guidance for working capital to only begin to release cash from 2014.

Capital expenditure amounted to EUR3.12 billion, mainly related to continuing development of oil and gas reserves and exploration projects. The group also incurred expenditure of EUR0.11 billion to finance the joint venture projects and equity industries.

Net financial debt at 31st of March 2013 was slightly up of EUR0.5 billion from December 31, 2012. Our leverage decreased from 0.25 to 0.24 due to an increased group total equity.

Thank you for your attention. And now I am pleased together with Claudio Descalzi and Marco Alvera to answer any questions you may have.

(Operator instructions) Theepan Jothilingam, Nomura.

Three areas, please. Firstly, just come back to the refining and marketing result. Relative to the margins you show sort of sequentially, it seemed that sort of underlying profitability sort of fell. So I was wondering if you could give -- make any comments around that and perhaps give an outlook for the performance of R&M for 2013 if margins are to remain unchanged from Q1 levels.

Secondly, in terms of project start-ups I think you referred to Angola, but you didn't really talk about cash again. There have been some reports perhaps of possible delays there. If you could talk about that, that would be great. Where we are in the commissioning process, what needs to be achieved.

And then lastly, again a sort of question in the market is could you talk about any update in terms of the sell downs, either in Galp or in Snam? Thank you.

I'll start answering your question about refining and marketing. As I said, the results we achieved in the first quarter 2013 has been, I would say, some way helped by the improving scenario and the effect of the restructuring process that maybe you may recall as being at length described during the strategy presentation.

I'm pleased to say that this restructuring plan is going ahead a little bit faster than expected. That's the reason why the results we achieved in the first quarter 2013 is showing this kind of improvement and as far as the EBIT guideline in the -- for the full-year, I would say that what we expect to have for refining and marketing is something that would be minus EUR120 million in terms of EBITDA that would be cash and new total something positive in terms of EBITDA.

And maybe before handing over to Claudio just to allow him to answer about cash again, as far as Galp is now you probably understand that because of the (inaudible) of this issue I wouldn't like to give you any further detail unless confirming our willingness to sell down these shares maximizing the value of our shareholders.

Thank you, Massimo. So let me say a few words about the state of our project and then I will talk to you and elaborate about cash (inaudible).

So if you remember now, our strategy presentation represented eight main start-up (inaudible) for this year. All in all our project development is on track with no major delays. And just talk about projects started in the first quarter I remember MLE in America and recently (inaudible).

And the contribution of these three projects in Algeria will -- there will be about an average 35,000 barrel per day in the next three quarters. Then we add in the next (inaudible) of the start-up of (inaudible) that will give a contribution -- is now a contribution of 3,000 barrels per day, but almost (inaudible) you. And then we got recently out of phase 3 that started production early April that will give a contribution about 7,000 barrels per day in the next three quarters.

Now talking about cash again and (inaudible) of cash again. So the onshore facilities have been completed. (Inaudible) has been handed over to production. Then I'm (inaudible) starting progress and the (inaudible) will be (inaudible) first or by (inaudible).

The (inaudible) island, which will provide the initial production for the project has already been handed over to operations. The island critical component has been already vested and the (inaudible) processing train will be pressurized with (inaudible) gas in June. Then the final (inaudible) commissioning activity will be carried out.

So we expect the facility to be completed and fully commissioned at around midyear, I mean June. And the production will start in the following weeks when the handover will be completed. So what we think and on average the contribution of cash again for us and equity production for 2013 will be between 10,000 and 60,000 barrels per day.

Just to complete your question about the results in (inaudible), I forgot to say that comparing the result of first quarter 2013 versus the fourth quarter 2012 the difference is due to the seasonality of the results being that the first quarter of every year typically the worst one. So having said that, I confirm that the end result for 2013 is expected to be better than in 2012.

I missed the contribution from cash -- did you say 10 to 15 -- one five?

10 to 15, one five average for the year.

Alejandro Demichelis, Exane.

A couple of questions. You write your guidance on production for growth this year, but given what we have seen in terms of the oneoff on the first quarter, you need quite an impressive growth in the next kind of three quarters. Claudio, you have highlighted start-ups and so on, but maybe you can give us some kind of more information of what do you see in Nigeria, what you're seeing in the (inaudible) production at the moment.

As you said, we confirm our growth and remember at $90 our growth was about 3% and $110 we confirmed the growth about 2%. So just to give you a general picture about -- so the main contributor. So first of all, I want to highlight that what we lost in the first quarter coming from existing production that have been impacted by exceptional events. And talking about Libya, that we have a shutdown of 10 days. And then a not easy ramp-up and we lost 30,000 barrels per day on average compared to first quarter. And more in about 60,000 barrels per day compared to the fourth quarter 2012.

Now everything has been restored and the production is about 260,000 barrels per day. And to confirm our growth we need to keep these average production in Libya.

For Nigeria, we lost 20,000 barrels per day in the first quarter. That's because of three recent events. It's (inaudible), it's sabotage and flooding. So sabotage and flooding impacted our pipeline, our network. And the network has been restored so we recover most of this production. What remains uncertain in Nigeria is our (inaudible) because as you know, we shut down all the production that rises in average between 4,000 and 8,000 barrels per day. That is still there, but the rest has been restored.

Then we have the ramp-up. The ramp-up of the field that started at the end of 2012 and (inaudible) still starting the first quarter will give a contribution on average of 85,000 barrels per day. And then that is another important contribution that we over rated, so the existing production plus the ramp-up. And then we have the new project.

The new project we have -- okay, new Angolan NG, we have (inaudible) and we have (inaudible) of projects that we already presented that to give a contribution of about -- sorry, value is actually other on -- about 65,000 barrels per day. So that's overall, plus the contingency that we have because on the growth we had a 42,000 barrel contingency. It's clear that we used part of this contingency to compensate the first quarter production. So overall we are absolutely in good shape to confirm our growth.

So this is actually a follow-up. What you are saying now is you have no contingencies left, yes?

No, we have still some contingency, but very few because we had to use our contingency in the first quarter. So our possible critical point comes from Nigeria. That is we have clearly possible (technical difficulty) issue. But we (inaudible) starting (technical difficulty) event. And the flooding caused most of the losses (inaudible) yet. So now everything has been cleared and the production restarted.

Libya, so far so good. And I think that the production in Libya is quite strong. That are the two possible countries where we can have issues in the future. (Technical difficulty) is in line and I repeat, we can confirm our guidance.

Alastair Syme, Citigroup.

Two questions. One just on the E&P side. Did you see a significant on the last of the quarter if you look at the production sold versus the volumes produced? There seems to be quite a big difference.

And secondly, can I just clarify on Egypt you referenced the (inaudible) issue. Is this just an issue of not being able to push domestic gas into export volumes and is there more to it and how do you think that evolves?

Just to talk about the first question, I think that there's no big difference about production at all and the (inaudible) that you feel that when you have to compare (inaudible) production against who has a longer period because they aren't over and under listing is something that you can compensate on the (inaudible). So that is not absolutely critical issue.

So the (inaudible) is not the -- we sell production, our gas production to -- in terms of E&P production to (inaudible). And then (inaudible) has a contract with (inaudible) Gas to send gas to the LNG plant. So what I'm saying that the gas -- domestic consumption is not in our hand. What we are discussing with the minister and with the Egypt PC, is the possibility to develop some of our gas for the (inaudible). That is in the medium long-term.

So you think in the meantime 2013 there will be no export volumes or very limited export volumes?

It's true that is really between the (inaudible) between the (inaudible) gas and (inaudible) and the state gas company. I cannot exclude that. I know that there are continuous talking between the two parties and it's clear that with the aim to find a solution for the near-term. But that is not in our hand as any NP side.

And so were there any exports in first order of LNG from [UF] Gas?

No, I don't think so.

Michele Della Vigna, Goldman Sachs.

Thank you for taking my questions. There were two really. The first one is I was wondering with a lower tax this quarter than what you were hinting at the Q4 whether that means that there is possibly going to be lower tax for the full-year?

And the second question for Claudio is what are the key FIDs that you guys intend to take for this year?

As far as the tax rate is concerned, I confirm the guideline that we gave to you during the fourth quarter 2012. That has been around 63% to 64% the full-year. I'd like to remind that this tax rate was related to a $90 Brent scenario and knowing that, a higher price with higher volumes and value produced in countries such as Italy and other countries with lower tax rate (inaudible) to reduce the tax rate and exactly what's happened in the first quarter of 2013.

For FIDs, until now we got two FIDs. One is for the full development of a Dubai oil field. The other is for (inaudible) that is still there in the Gulf of Mexico. And the foreign gas IDs will be the block 15/06, West Harbor phase 2, what we call a phase 2 that is a second and an additional FID considering the new discoveries that we have in the last year in the block 15/06 because we already sanctioned the (inaudible) and now we have to sanction it phase 2 because we have to add to the cluster other structures.

Then we have sanctioned John Creek complex in Indonesia, really approved and sanctioned by the government, now we have to pass through the second sanction. And the block 15/06 East Harbor and then the two fields in Russia, (inaudible) and (inaudible) phase 2.

And the last one is the offshore field in Italy and Sicily (inaudible) that by the end of the year that are the main FIDs.

Martijn Rats, Morgan Stanley.

Most of my questions have already been answered but there's one thing I sort of just wanted to clarify. In the statement it says that you're confirming growth and profitability targets for 2013. And of course the (inaudible) targeted production will be higher this year than last year. But always when I think about Eni's profitability targets, they are, as far as I know, all sort of a few years out, like 2015, 2016, 2017 and towards the end of the decade. What profitability targets for 2013 are you reconfirming?

Your line was not very good. So the first question is about production this year compared to last year's (multiple speakers).

No, (multiple speakers) one. In the statement it says that you are confirming targets for growth and profitability for 2013. But as far as I'm aware, most of Eni's targets are all a few years out. I was wondering if you could just quickly summarize which are actually the targets for 2013 that you are confirming, besides the obvious one that production will be higher than last year?

Martijn, it's Marco speaking. If you talk about the statement, you may be referring to the gas and power EBIT guidance that we are reconfirming as the same we gave when we announced the 2012 results a few months back, which was of an EBIT in line with underlying profitability that we had last year in gas and power. I'm not sure though this was the question.

So that's the full extent of that comment.

Yes.

Irene Himona, Societe Generale.

I had a couple of questions please. So first of all on refining and marketing. I wonder if you can give us a sense of the performance of refining versus marketing because I know that although the refining margin was up quite strongly, your retail sales are down quite substantially in both Italy and overseas. So there's clearly demand destruction continuing in that market. So just a sense of one versus the other.

My second question on the gas and power EBIT guidance. I mean are you prepared to say for 2013, given that the contract has not as yet been renegotiated, given that we've seen the level of the loss in Q1, are you prepared to say what you would expect in the full-year if the contracts are not actually fully renegotiated by year-end? Thank you.

As far as the R&M, the EBITDA we achieved in the first quarter of 2013 that is around 150 negative, has been driven by the refining. So the negative is made by refinery and we (inaudible) are more or less (inaudible).

Irene, on gas and power I think what we're prepared to say is having confirmed the guidance, which means committing to an equal result as we had in 2012, excluding the oneoffs, the renegotiations are all underway. It would be early to speculate on which exactly and on what terms we expect to close.

What I can say is that there's quite good traction on these discussions. As you know, all the discussions are open at this point. Based on the individual closing of these negotiations, we will have volatility in quarterly performance, as the effects are all retroactive to basically January 2013 or in some cases even October 2012. So I think that's what we're prepared to say at the moment.

Of course, the PSV is deteriorating, has deteriorated now. The liquid hub price in Italy is in fact below northern hubs and as we said previously, this is putting pressure on the commercial margins, but it's also somewhat making the discussion with suppliers a little easier.

Nitin Sharma, JPMorgan.

Two questions if I may. First one on the ongoing negotiation for gas supply contracts. Could you give us some more details on the direction of these discussions specifically? Will it be correct to assume post completion of the present round of renegotiations, pricing of about 70% to 80% of the gas supply will be hub linked?

And second one, Claudio, could you please give us some more details on the next step in area four? Obviously you've announced the completion of appraisal plan today. Specifically what's your timeline? Do you have the drilling of the exploration prospect in the southern part of the block? Thanks.

I think it's fair, as you pointed out, to assume there will be more than one round. As you may know, these contracts tend to be looking backwards, so the reference periods that we're looking at right now don't necessarily reflect the commercial outlook we have for the full-year and even worse for 2014. So there will be multiple rounds of negotiation.

I would stick to the targets we gave to have over the medium-term, actually 100% of our supply costs linked to hub levels, which does not mean they will be hub indexed, but at the level basis I think that's a fair assumption to make, yes.

So from Mozambique number, you know that we are -- so far we have completed successfully. Success was leaning on nine wells, out of which six have been tested. So the exploration phase and the appraisal phase of (inaudible) as now we are already started the study to arrive as soon as possible to the plan of development, especially for the (inaudible) area. But also for the other area completely entirely in the area for.

We have still one well that we start drilling back to back and we think we are going to finish by August-September in the south part of the block targeting a different kind of (inaudible). And that will be in that we are going to drill these wells and then we pull a while, we stop the exploration campaign. We have to reassess all the data for the (inaudible). So that is what is happening in (inaudible).

Hootan Yazhari; Merrill Lynch.

Just a quick question. You addressed a little bit earlier that you're obviously not prepared to comment on the timings of the disposal of your residual stakes in Galp and Snam. Nevertheless, I just wanted to get an indication of how urgent you see these in light of the buyback targets that you put out at the strategy day reasonably recently. Are you thinking is the buyback moving up in importance in management's view? Or is this something you're going to wait until 2014 when we see the reversal of the working capital buildups that you alluded to?

If you remember, what we said in terms of buyback was something different. We never linked the buyback with the disposal. We said that the buyback will be -- the decision about the buyback that now is assumed to say after summer will be based on the Brent price we will experience this time. And second, the degree of completion on our strategy as far as 2013-2014 is concerned. I mean the increase in pre-production and the status of the gas supply contract renegotiation.

So we never linked the buyback with the disposal of gas (inaudible). We have nothing in our (inaudible), we are just waiting the way, the timing, the better timing to realize this disposal in order to maximize the value.

Jon Rigby, UBS.

Could we just get back to gas and power a minute? Are you able to give a little more color on the way its earnings fall or are split between commercial and domestic within Italy so we get some idea of the damage that the PSV linkage in commercial is doing to earnings? And maybe also if you're trying to be relatively smart about what you do with your gas, i.e. sort of selling it out of Italy, how earnings are moving between Italian earnings in the segment and non-Italian earnings in the segment?

I would assume that the numbers right now reflect the regulated price, which is an official price where the PSV does not have an impact as that is mainly oil linked, although that will increase over time as stated by the regulator. That is for what regards the residential regulated tariffs.

Regarding Italian versus Europe, I think as, let's say, the hubs converge, even though right now the PSV has been below the northern hubs, with hubs converging also the prices will converge. So from a commercial perspective the margins you can expect are similar or are beginning to be similar. This is for, let's say, the current sales we're making, although in the portfolio it's fair to say we also have historical sales that are oil linked. This is before the PSV really became a reference point in the liquid market only last year. This was probably the case.

We are working to position ourselves in the premium segments, increasing the retail number of customers. And you saw there's a commitment on that. We're also increasing LNG sales and we're also targeting more sophisticated products through the integration of our commercial operations. With our trading operations we're now able to offer the flexibility that the customers are asking and they're going to be willing to pay a premium for this.

Could I maybe just ask a follow-up on that in a different way? Are your supply contracts that are originally targeted for Italy where you have some flexibility about where you fell, were they profitable into commercial users in Northern Europe during the quarter?

I would say yes, although you have to keep always -- there are transport costs associated with those contracts that you won't recover once that gas that was destined for Italy is sold outside of Italy. The other consideration I would make is that this is only applicable for the Norwegian and for the Dutch contracts. The other contracts that are physically delivered in Italy, because there's no reverse flow capacity out of Italy, cannot be physically moved outside of Italy.

No more questions at the moment.

Then I think we can wrap everything up. We're available for further questions on the investor relations number if you want. Thank you.