Eni Swings to Q1 Loss on Covid-19 Pain: Update 2
(Adds breakdown of operating profit, capex details)
Italian oil and gas company Eni has slashed its forecast for this year's production, after swinging to a loss in the first quarter, it said on April 24. The company added that the senior management, led by CEO Claudio Descalzi, would be paid less this year.
The company suffered a net loss of €2.93bn ($3.15bn) in the three-month period, versus a €1.1bn profit a year earlier. The reversal was largely due to losses in inventory value due to lower prices, impairments, and other one-off items. Even excluding these charges, though, adjusted net income shrank to a mere €59mn ($63.5mn), from €992mn a year earlier.
Operating profits came to €1.31bn, down 44% yr/yr, on the back of a 55% decline in upstream income to €1.04bn This was partly offset by a 29% growth in earnings from Eni's gas and power division to €431mn.
The company also lowered its 2020 production guidance to 1.75-1.80mn boe/d, from 1.84mn/d, citing cuts to spending and "pandemic effects." Eni intends to reduce its capex budget by 30% in 2020 to less than €5.4bn and up to 35% in 2021. Of the remaining capex this year, €2bn is considered vital to maintain operations, the company said in a conference call.
"The period since March has been the most complex period the global economy has seen for more than 70 years," Descalzi said. "For the energy industry, and in particular for oil & gas, the complexity is even greater given the overlap of the effects of the pandemic with the collapse in oil prices."
To help weather the crisis, Eni on April 23 approved the issue of up to €4bn in bonds. It has also halted its share buyback programme.
Eni's upstream portfolio has a "competitive" breakeven point, Descalzi said without disclosing the figure. However, the CEO said in the conference call that Eni benefitted from a production cost of just $6/b.
The company had €16bn in liquidity reserves at the end of March, including €3.6bn in cash on hand and €6.6bn of readily disposable securities, €1.1bn in short-term financing receivables and €4.7bn of undrawn committed borrowing facilities. It expects to generate €7.3bn in adjusted cash flow assuming an average Brent price of $45/b. The benchmark is currently trading at less than half that amount – under $22/b.
Descalzi told investors he did not rule out making revisions to guidance and spending plans if oil prices averaged lower than $45/b. The company may consider cutting dividends but it is too early to comment on this, he said. Earlier it announced it would increase its 2020 dividend by 3.5% to €0.89/share.
Management take cuts in salaries
The company said separately that Descalzi would "defer the collection of half of his 2020 long-term incentive plan until 2021," in relation to the Covid-19 crisis and the need to cut costs. The deferral is equivalent to €735,000, 15% of his total remuneration, or 46% of his fixed remuneration. All of Eni’s senior managers have decided to do the same. This will reduce company outflows by €30.2mn this year.
Eni also said it would save an additional €16.5mn by reducing costs relating to the remuneration policy of the senior management in 2020. Alongside further administrative savings, these initiatives will save a total of €62.3mn.