Eni S.p.A. (ENI) Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to Enis 2026 First Half Results Conference Call hosted by Mr. Claudio Descalzii, Chief Executive Officer. [Operator Instructions] I am now handing you over to your host to begin today's conference. Thank you.

Thank you. Good morning. Good afternoon for being with us today. Our second quarter and first half results clearly reflect our successful execution of the strategy and the objectives we have consistently communicated. In Q2, Eni generated EUR 5.4 billion pro forma EBIT and EUR 2.3 billion net income both doubling year-on-year and EUR 4.5 billion of cash flow from operations, up over 60%. This growth significantly outpaced the increase in Brent prices over the same period, demonstrating the strength of our operating leverage and our ability to absorb a highly unfavorable foreign exchange environment. . Looking at the first half of the year, we delivered a remarkable 40% year-on-year increase in pro forma EBIT. Reported gearing remained stable quarter-on-quarter while pro forma gearing declined to 10%, reaching the lower end of our target range. Overall, this performance reflects excellent operational execution, effective capture of market opportunities and the continued delivery of our consistent strategy. The first half of 2026 marked by the emergence of a new crisis, the Gulf has once again put our industry to extraordinary volatility. Yet any, as demonstrated its ability to effectively meet gas turn on pressures. Our resilience is underpinned by a broad geographic diversification, strong operational efficiency and the deployment of proprietary technologies. At the same time, our robust organic growth continues to be fueled by our outstanding exploration success and a deep pipeline of development opportunities. Most importantly, our growth is increasingly multidimensional. While exploration and production remains our highly competitive core business, we are rapidly scanning attractive growth platforms right across the energy value chain. Specifically, I would like to highlight 3 key pillars of our strategy. First, diversification. We are well diversified across the geographies, businesses and technologies, while some of our operations have been affected by events in the Middle East, the overall impact has not been material. Actions taken in 2026 have further strengthened this diversification, increasing our exposure to Asia in South America expanding our transition-related businesses and opening new opportunity in trading activities, critical minerals and stationary batteries. Second, growth. We continue to deliver a unique double engine of growth, combining industry-leading organic upstream production with a rapid parallel expansion in low carbon energy. Third, financial performance. We continue to generate standing financial results with over 60% of our original plan targets already met year-to-date. Also thanks to the pipeline to market of our projects. Our satellite model increasingly acknowledged as a material positive financiator for Eni continues to derisk the balance sheet attracting third-party capital to fund our expansion across new technologies and geographies. Turning to upstream. We delivered an outstanding 8% year-on-year reported production growth. In the first half of the year or 11% underlying, we fully offset Middle East volume losses, thanks to the efficient execution of major operating projects, including Agogo, in Angola, Amoca Mexico, Congo Phase I as well as a strong contribution from Var Energy. This growth is entirely organic and reflect investment and exploration successes achieved over several years. As discussed during Q1, our unique 2026 exploration performance has added over 1 billion barrels of new resources supported by credible development pathways. This success is driven by key discoveries, including Agata 01 in Angola, Moran South 1 in Codere to offshore gas discoveries near Baracalam in Libya, the limits discovery of Shore Egypt and the giant Galligan gas ground and condensate discovery in Indonesia. We have further refreshed our future pipeline with new acreage position in Uruguay, Timo list and Gambia. Furthermore, to secure our medium-term production capacity during the plan period, we have sanctioned 3 major projects: Balan Phase III in Cote d'Ivoire Gang North in Indonesia and Cronos in Cyprus. Beyond these projects, we are reshaping our global footprint through the blue buildup of 2 diversified regional clusters. In Asia, the CR business combination completed in June, created our largest satellite platform to date and established a leading player in the Pacific region. Initial production exceeded expectations surpassing 300,000 barrels per day and backed by a 3 billion-barrel reserve upside. It has a clear path to approach 800,000 barrel per day by 2030. In the Americas, we continue to advance significant opportunities in Argentina and Venezuela, which together with our existing position in Mexico and the United States represent an increasingly important component of our upstream portfolio. In detail, in Venezuela, we are finalizing a negotiation for new contracts, for Konin and Corocoro. Simultaneously, we have finalized the gas export agreement for the giant Perla field, collectively, our footprint in Venezuela unlocks an outstanding gross potential of more than 5.5 billion barrels of recoverable resources. Meanwhile, in Argentina, our newly consolidated asset all an exceptional 25 Tcf of gas equivalent to 4.3 billion barrel of recoverable resources, plus an additional 500 million-barrel condensate bringing total gross recoverable resources in the country to 4.8 billion barrels. The new material initiatives in Argentina, Venezuela, East Asia, together with our African portfolio, provide absolute confidence in our long-term trajectory. As a result, we now expect production growth to be around 4% CAGR guidance through 2030, while we are also developing a unique visibility on a further wave of growth opportunities beyond 2030. Importantly, through portfolio high grading and strategic moves like our recently announced Mercuria joint venture, this volume growth will translate directly into cash flow. Underpinning our primary target, growing our upstream free cash flow per barrel by more than 50% by 2030. Our Q2 results demonstrate any stability both to capture favorable market conditions and to enhance underlying profitability. E&P delivered outstanding production growth and successfully captured the benefits of the market environment with particular strong contributions from Norway and Congo. GGP generated pro forma EBIT of EUR 0.47 billion confirming better-than-expected performance and supporting a further increase in our EBIT guidance to over EUR 1.4 billion. We also see additional upside potential in the second half supported by current pricing conditions and inventory replenishment dynamics. Plenti and Eni and I together generated EUR 670 million of pro forma EBITDA in the quarter and EUR 1.13 billion in the first half, supporting an increase in full year guidance to EUR 2.6 billion compared with the original EUR 2.4 billion. Within transformation businesses, refinery utilization recovered following the major turnaround activities completed during the first half. Mercari also continued to reduce losses in line with the improvement plan, also supported by better market conditions. Contribution from associates benefited from supporting macroeconomic conditions and the consolidation of Searah from June onward. The first half tax rate of approximately 39% was below our full year guidance, reflecting the impact of high grading upstream production. The accounting impact of satellite, the transition towards more sustainability, diversified overall income mix and the benefit of our restructuring and performance improvement initiatives. Cash flow from operations remained strong, supported by dividend contribution from associates and continued working capital improvement. Operational working capital generated a positive contribution in the quarter, and we continue to expect an overall reduction throughout 2026. Capital expenditure amounted to EUR 1.8 billion in Q2, and we continue to expect approximately EUR 7 billion of gross CapEx for the full year while we also reduced the net figure to below EUR 5 billion. We paid the fort and final quarterly dividend related to 2025 and repurchased EUR 600 millions of shares. Since 2021 outstanding shares have been reduced by around 18%. In light of the raised guidance for CFFO to EUR 15 billion, we now expect to repurchase EUR 3.4 billion of shares in the 2026 program representing a combined yield to our investors of around 10%. Pro forma gearing at the quarter end remained at 10%, the lower end of our target range and we expect reported gearing to converge to our debt level by year-end. In conclusion, the combination of our upstream positioning and growth outlook, our integration across the entire energy value chain, the increasing value creation from our transition businesses and our strong financial foundation position us competitively in a world that has entered a new energy paradigm. This confirmed by the revised guidance for most of our business is that translate into an increased distribution. Underlying oil and gas production growth is now seen exceeding 5% above the upper end of the previous range. GGP pro forma EBIT is raised to over EUR 1.4 billion, plus 40% compared with the initial level. In pro forma adjusted EBITDA is revised up by 18% at EUR 1.3 billion. And at a revised scenario of 85% dollar per barrel brand, adjusted CFFO is expected at EUR 15 billion, returning a higher buyback of EUR 3.4 billion. The new buyback represents 127% increase over the initial guidance of EUR 1.5 billion at the budgeted cash flow. The potential special dividend related to oil price above $90 per barrel or gas price and SEM margin. More than 50% of the original budget assumptions will be detenanted in the last quarter. In this environment Eni is in one of the strongest position in its history. That concludes my marking together with my colleagues, from any management team, I'm ready to take your questions. Thank you.

[Operator Instructions] I now leave the floor to Mr. Jon Rikefor the Q&A session.

Thank you, [Operator Instructions] We'll start with Alejandro Vigil at Santander. Alex?

The first question is about the guidance about production. Definitely, this year looks very strong also with the Searah consolidation. If you can give us numbers about the outlook of 2030 of production just to have some indication of the range of potential volumes that year. And the second question is about the European natural gas market. You mentioned that in the guidance for global gas and LNG, you are not including any upside from the current situation. If you can elaborate about how you see the second half of the year. Thank you.

Thank you for production so I think I -- we do will take over for the question and were very well, okay. Is there a crestal there for -- to give you an update on the gas in the second half, as you asked.

Yes. So on production, of course, you noticed that we have improved our guidance in 2026. Originally, we provided a range of 3% to 4% growth underlying, which now increased to 5%, and this is coming for -- from a higher contribution from some country like Libya, Mexico, Kazakhstan and of course, the anticipation of the business combination in Searah. While for the 2030, we also provided in a stronger support to our originally provided guidance. And you have noticed that we have accelerated some major FID. We have included some projects, which initially were beyond 2030, and that we have now anticipated to the 2030 plan.

So just to give some more color on our production, if we look at all the projects that were in our slide, we have 54 projects. They're coming from our organic growth. So our exploration is something that is coming from the exploration we performed in the last 10 years. And most of these projects are ready in a very -- so we talk the FID. Some are really in execution, but most of them are with the PD done. So that is going to give that 4% with said by 2030 and is going to confirm a solid growth also after 2030.

So when it comes to the gas market scenario for the second half, I would say our scenario is currently in line with the forward curves, as you can see. But I think we can say that the situation is fairly fragile given the geopolitical situation and, let's say, delay in the replenishment of the European storage. So we think that depending clearly on the evolution of the situation, we can see upside potential in terms of volatility and flat price numbers when it comes to the second half and I think the idea is that we are ready, clearly, with our assets to take advantage of that situation.

We're going to now move on to Berastaria RBC. Biraj, are you there? .

In. The first is just on Venezuela, which you touched on in your initial remarks, there were some reports recently that the government had presented new terms to the industry. I'm just wondering if you thought those were sufficient to drive investment beyond 2027 and '28 and more on the oil side than the gas side? And then the second question is just on refining. The strength in the downstream has been the big theme this quarter. I know you don't have a huge amount of exposure to this, but I just noticed your indicator was down quarter-on-quarter. I guess we're looking at the cracks on the screen, which are very strong. So could you just help me understand why you're not able to take advantage of that and how we should think about that kind of going to the second half.

So Venezuela, now maybe whether can complement what I'm going to say. Venezuela, we are in negotiation. Very, very open, clear and transparent is very good negotiation. We are discussing very well with the ministry with Pete. Clearly, we also with our American partners, and we have a big potential, as we said, we are one of the best block in 5. We have we have Corocoro. We have parallel for which we already signed a contract that has been very, very quick in a couple of months ago. We signed a contract for export. That is very good because it's going to complement our domestic production, and that gives even more great and more space for future investment. As you know, we already developed all the -- most of the infrastructure for the second phase, so we can really go fast for the second phase and then put in place a floating LNG for export. So up to now, Venezuela is responding very well. Clearly, we are going to negotiate a contract that allows us to make investment. We have to remember the history of this country, it's not that we forgot what we had been in the past. So we are prudent. But I think that what happened until now is incenting us to go ahead with our Venezuelan partner with Pete and the minister. Just to talk about SEM, I like that maybe Francesco say something about SEM. And then if there is anything to us for Venezuela or in general for downstream. Supino can add something and Stefano Ballista if there is something for the biofuel refineries. .

Yes. About our benchmark refining margin. Clearly, this benchmark is say, a nominal value that is presenting a status that is normalized status of the market. So it takes account of the crudes that are generally imported in our refineries take into account of the freight costs that are normally assumed for this transportation and for these logistic events. The situation that we faced since March are completely, let's say, out of normal -- so the term that you can read on just a generic way is not the actual margin that we are able to capture because there are some factors of discount, mainly higher freight cost, higher register cost, differential of crudes that are not matching the original crudes that were included in formula, different hills. . And also, there is some hedging, let's say, factors that weighted because we covered a small portion of the throughput during the quarter because we take advantage of the scenario. Clearly, the spike that occurred in the last month is so, let's say, material that has limited this opportunity. In general, you have to consider that what you read as an average on a nominal term to be converted in our actual figure will be with a discount of $2, $3 per barrel.

Okay. It's very clear. The fundamental is in any case that we have completed all the turnaround in the first and the sum in the second -- in second quarter. And so we are very able to maintain the maximum capacity in the third call, and that it means with this current margin a lot of rise.

If I may, I'd like to complement with some operational information. On the gas business, Venezuela, of course. On the gas business, as you know, in March, we have signed a sustainability agreement on Card -- and the -- and PDVSA is honoring this agreement, so it's providing cargo to pay the current gas invoices. On the other hand, we are preparing a plan of development for Perla to export gas and the filing of this POD is imminent. On the oil business, as Claudio said, we are at the very final stage of the negotiation. And we have also prepared ourselves, and we are ready to mobilize as soon as we sign this contract rigs to exploit the resources there and make use of the spare capacity that the facilities in Venezuela have to increase production, of course. .

We're now going to move to Josh Stone at UBS, Josh.

Two questions, please. Firstly, on thanks for the project list on Slide 6. It's useful. If I understand correctly, you want to develop these new projects without increasing spending. So it sort of brings up the question of what -- which bridge projects are falling off the list? And I noticed in your release, there was some impairment related to a slowdown in more marginal fields. So maybe anything around the sort of which fields are more marginal, which geographies are more marginal to make room for these new projects would be useful. And then second question on chemicals. The losses clearly narrowed this quarter, but still losing money. Maybe just talk about the trend of earnings is what you're seeing for margins in chemicals and how much of the improvement could be attributed to the self-help versus the wider macro.

So for CapEx, so it's true, we are growing and also, we demonstrate in the last couple of years that we are going without increasing CapEx. That means that it comes from at least 2 factors. One, that our -- we are very effective and efficient in developing field. So in the last project, I think in the last time projects that we developed -- I talked about a large project we expect not just the timing but also the budget. So we never exceed our budget. That is a very critical point in the upstream, especially when you develop deep offshore or floating LNG or other stuff that you're able to respect time and budget. Secondly, are we -- as you know, we create a different kind of economic model, so state model through which we consolidate and through the growth component and the value component -- they have production, they can justify their investments without really creating additional burden on our balance sheet. And that allows us to go faster and keep a very clean or live balance sheet that allow us to be to expand or increase our remuneration for, for example, that is, as you know, is our priority, and that's what we demonstrated in the last couple of years. So it's not a question to delete or write-off as you sell margin on file. We never write off margin feel we farm out through an M&A process that was very successful through which we got some good income. But I think that's the reason -- the 2 principal reason is what I tell you. I told you. So I don't know if you want to -- either to add something, otherwise, I give the ball, I pass the ball to Adriano talk about chemicals and chemicals trend and how we're going to do future.

Josh, thanks for the question. As you were described in the question, the result in thermochemical is improving quarter-over-quarter. In the second quarter compared to the same quarter of last year, we have seen a major improvement in the range of 3 digit above 3 digit. We need to make a distinction between what is transformation and what is the scenario that also as you asked. In terms of transformation, we are performing in line with the what we said to the market that we expect that on a yearly basis, we have in the ballpark of EUR 250 million. And if you see right now the trajectory of result of the transformation we are a little above 10% above this target of EUR 250 million, right now, we estimate more in the range of EUR 280 million, EUR 300 million. Part is also a scenario. We've seen an improvement in the scenario in the second half. You need to consider the net impact of the scenario because you know that we are energy-intensive or feedstock intensive. So of course, what we have seen in terms of increase of feedstock energy, we, of course, is higher cost for us but we have seen also a shortage in the market, not an increase of demand. This is something that we should ground as a scenario. There is no increase of demand, but it's a shortage of product because for 6, 8 weeks due to the Hormaz closure we have not seen imports from Middle East. But after 8 weeks, we have seen an increase of import of U.S. So whatever probably was not coming from Middle East has been replaced. So we are now back to the starting point. But for sure, in the second quarter, we've seen an improvement of the scenario. To the last part of your question, how much is this trajectory going forward is based on what we declared to the market. We expect to continue to improve performance due to transformation of the improvement on a yearly basis for coming years is a 50% transformation and 50% is new platforms, more or less.

Thanks, Josh. We're now going to move to as Andrew Bose at Mediobank. Alessandro?

Yes. Thank you for the questions. The first one, for Claudio. And going back to production. Of course, you have a lot of production coming to 2030. But if you add all the other opportunities that you have in Cyprus, additional upside in Indonesia. Argentina and Venezuela, it looks like the potential for underlying growth is very large even beyond 2030. And of course, there's always a need for disposal. But putting disposals aside, what could be the potential underlying growth of the portfolio that you have today looking into, let's say, middle of next decade. And the second one, kind of a follow-on on disposals. So can you give us an update on the disposal that you expect in the upstream, maybe Indonesia as well there is a bit more to be sold there and also on the scope of the agreement with IRS in the upstream.

Thank you for your question. Clearly, we in next year, we are going to have an update on what we said now and I just said is that the expectation up to 2030 is 4% growth. After 2030, maybe can be better than that. For sure, I don't think that there is another company that has more than 54 projects for startup radiorganic with very low cost. So we're going to see. Clearly, we have to understand what is the situation, it's very difficult to talk about the end of the year with this kind of volatility with our ore is happening. And it's hard to talk about 2027, all see how we are really solid, and we don't have -- we don't scare anything. But clearly, if you have to talk in 5, 6, 7 years, what are going to happen. I think that we are in a situation, and we're we -- the world needs more energy. That is clear. There is an energy race among the big champions, the big countries for different reasons, demography clear, but also we talk about hyperscale data center, AI and the growth rate as the industry and a lot of countries are demonstrating. So we need energy. And now we understood that we need oil and gas that is clear. And we are really well pleased to give an answer to this call, this big call about oil and gas. I don't think that we never been so strong and inside industry in terms of number of projects and geographies because when I talk about 54 new project, we are talking about at least 13 or 13 or 14 different countries. So diversification, it's a key word diversification. That means that we don't have all the eggs in the same basket. And each country is very rich in terms of future growth. So I can tell you, we are in a good position. We have in a good position in a world that needs is really -- they need energy. They are hungry for energy, starving for energy and any is really in a very strong position, never been so strong. Disposal, I think that I give the floor to Francesco to talk about the state we sold our disposal.

Clearly, the plan for this year is almost completed. As you mentioned, we are in advanced stage for the last step that is the Indonesia 10% that has already entered the first -- the last stage. We have completed a number of deals and that are pending the closing. We have done the Nigeria onshore disposal. We have done -- we are running the increase our capital plan to with the consequence in term of balance sheet. We announced that this deal related to infrastructure -- so there are various activities for the coming years, we will continue to maximize the valorization of our portfolio. Our portfolio is continuing -- is a live animal, it's a living animal. It's added opportunity through exploration, through business through business development, business combination. And this means that there's opportunity to valorize part of that to reduce exposure to areas or regions that are no more core or eventually also to improve the validation of our transformation business. So I think that we proved that I remember the analysts were considering last year as the top of our disposal trial. I think that also we proved that this year, we have new ideas to put on the table. I think this will continue in the coming years, but will be part of the next 4-year plan.

And what is the perimeter of the infrastructure deal? .

The infrastructure bill is a partnership that is working on a generic. It's not a specific set of assets. Infrastructure, you know that the upstream business has many kind of infrastructures. So the idea is not to build or identify a geography, a field or something that is well defined. Maisageneric description of a broader portfolio and creating a financial synthetic element that simulate the cash flow related to that infrastructure. And this is the way that we, let's say, created that has a potential to start more value from infrastructure that has a fixed return, why we would like to invest in double digit, high double-digit return on our upstream assets. .

Thanks, Alessandro. We're going to move to Amit Bensalem. Are you there?

You mentioned the possible extraordinary dividend review what would trigger that decision? And if cash flow remains strong, would buyback still be your preferred way of returning excess cash to shareholders. Thank you.

We have set the rules for the excess dividend. So the rules are, if we are assuming in a full year, $90 brand scenario. Currently, we are at $91. So we are in the money for the dividend, excess dividend distribution. If we assume the 50% increase of refining margin and $9 is a trigger, and we are well above that number. And we assume it is a 50% on the EUR 36-megawatt hour that is -- that was the budget for TTS and it's 54% means that the 50% increase. So we will be above the 54% on average. And currently, we are probably in the range of 47%, 48%. So there will be a net dividends. So if we want to say, simulate with the current level of year-to-date price, there is an extra dividend. We will see in September how the market will evolve, which our expectation for the end of the year and clearly, how the company has performed in...

Yes, but what we said, just to specify that in October, we had to take the decision, we're going to pay the extra dividend in the fourth quarter. So by December. So just to remember what is going to happen. It's not...

Yes. And we -- just another element, if we are clearly in that situation where there is an extra dividend, yet to consider there is probably also an extra buyback because if we enter in a higher price, there will be a ceiling up to EUR 4 billion, but we are currently at EUR 3.4 billion. but we saturate the 60% cash flow from operational distribution up to the limit, yes. .