Eni has announced group unaudited results for the fourth quarter and for the full year 2007.
Paolo Scaroni, Chief Executive Officer, commented:
"Eni delivered excellent results for the full year 2007 despite the euro's strong appreciation versus the US dollar. We reinforced our growth strategy by completing a number of competitively-priced cquisitions which will deliver further value in years to come, starting from 2008."
Financial highlights
Fourth quarter
Operating profit was €5.17 billion, up 30.6% from the fourth quarter of 2006. On an adjusted basis, operating profit was €5.29 billion, up 10.8% due to a better operating performance reported mainly by the Exploration & Production division, driven by higher realizations. Partly offsetting this, was the euro's appreciation against the dollar (up 12.3%) and rising costs. Both the Petrochemicals and Refining and Marketing divisions incurred an operating loss due to an unfavourable trading environment.
Reported net profit was €3 billion, up 98%. On an adjusted basis, net profit was up 13.7% to €2.68 billion, mainly as a result of the stronger operating performance and a decrease recorded in the Group tax rate on an adjusted basis (from 49.2% to 47.7%).
Capital and exploratory expenditures for the fourth quarter were up 24.2% from a year ago to €3.66 billion mainly related to the finding and development of oil and gas reserves and the upgrading of gas transportation infrastructure and refineries.
Net borrowings amounted to €16.33 billion as of December 31, 2007 and increased by €4.90 billion in the fourth quarter in relation to capital and exploratory expenditures (€3.66 billion), investments (€1.20 billion), cash returns to shareholders of €2.20 billion as interim dividend and €195 million through the repurchase of 7.94 million own shares. These outflows were partly absorbed by net cash generated by operating activities2 of €2.47 billion.
Full Year
Reported operating profit was €18.87 billion, down 2.4% from a year ago. On an adjusted basis, operating profit was €18.99 billion, down 7.3%, due to a weaker operating performance in the Exploration & Production and Refining & Marketing divisions.
Reported net profit was €10 billion, up 8.6%. On an adjusted basis, net profit (€9.47 billion) was down 9%, mainly as a result of the lower operating performance.
Net cash provided by operating activities of €15.52 billion, combined with cash from divestments of €0.66 billion, were absorbed by cash needs for: (i) capital and exploratory expenditures of €10.59 billion; (ii) investments and asset acquisitions (€9.91 billion) including the acquisition of 20% and 60% interests in OAO Gazprom Neft and three Russian gas companies respectively, as part of a bid procedure for assets of bankrupt Yukos (€3.73 billion) and the acquisition of oil and gas assets in the Gulf of Mexico and Congo (€4.52 billion); (iii) cash returns to shareholders of €5.26 billion. Net borrowings at year end were €16.33 billion, up €9.56 billion from December 31, 2006.
Repurchase of own shares: a total of 27.56 million of own shares were purchased at a cost of €681 million. Since the inception of the programme, a total of 363 million of own shares were repurchased at a cost of €6,193 million, reducing by approximately 9% the shares outstanding and improving 2007 earnings per share by the same amount.
Return on Average Capital Employed (ROACE)3 calculated on an adjusted basis for the twelve-month period ending December 31, 2007 was 19.3% (22.7% in 2006).
2007 Operational highlights
Fourth quarter
Oil and natural gas production for the fourth quarter averaged 1.815 mmboe/d, an increase of 1.1% compared with the fourth quarter of 2006 mainly due to the benefit of the acquired assets in the Gulf of Mexico and Congo, as well as the organic growth achieved in Libya and Egypt. These positives were partially offset by mature field declines, disruptions in Nigeria owing to continuing social unrest and the impact of year end price revisions in certain Eni's Production Sharing Agreements (PSAs). Excluding the impact of lower entitlements in PSAs, production was approximately up 4%.
· Eni's worldwide natural gas sales were 29.75 bcm, up 9.8% driven by higher sales volumes achieved in the European market and in LNG sales in both the Asian and North American markets.
Full year
Oil and natural gas production for the year averaged 1.736 mmboe/d, down by 1.9% compared with 2006. Production performance was impacted by events in Nigeria, unplanned shutdowns and technical issues in the North Sea, mature field declines, mainly in Italy and the United Kingdom, as well as price impacts in certain PSAs. Full year production was also affected by the Venezuela expropriation of the Dació'f3n asset (down 15 kboe/d) which took place on April 1, 2006. Partially offsetting these effects was the benefit of the acquired assets in the Gulf of Mexico and Congo as well as the organic growth achieved in Libya, Egypt and Kazakhstan.
Eni's worldwide natural gas sales were up 0.9% to 98.96 bcm driven by the organic growth on international markets partially offset by the lower European gas demand registered in the first quarter 2007 due to unusually mild winter weather.
Overall the trading environment was unfavourable due to the appreciation of the euro over the dollar (up 9.2%) and sharply lower realized refining margins reflecting a decrease in sour crude discounts that affected Eni's complex refineries. These negatives were partly offset by higher Brent crude oil prices averaging $72.52 per barrel for the year (up 11.3%).
2007 portfolio developments
The company made important transactions to acquire oil and gas assets in the Gulf of Mexico and in Congo onshore with total expenditures amounting to €4.52 billion. In 2008 these assets are expected to produce approximately 100 kboe/d under Eni scenario.
Eni purchased in partnership with Enel (60% Eni, 40% Enel) a 100% interest in OAO Arctic Gas Company, ZAO Urengoil Inc and OAO Neftegaztechnologia as part of the liquidation procedure of bankrupt Russian company Yukos. The acquired entities are engaged in exploration and development of large predominantly gas reserves, amounting to approximately 2.5 bboe of resources net to Eni according to a 30% interest determined assuming Gazprom exercises its call options to acquire a 51% stake in the three companies. Through the same transaction Eni also purchased a 20% stake in the oil and gas company OAO Gazprom Neft. Eni granted Gazprom a call option to purchase the 20% stake in OAO Gazprom Neft. The cash consideration for these transactions amounted to €3.73 billion.
In November 2007 Eni announced the terms of recommended cash offer to acquire the entire issued share capital of the UK-based oil company Burren Energy plc. Total cash consideration is expected to amount to approximately €2.4 billion. Burren holds producing assets in Congo and Turkmenistan flowing at a rate of over 25 kboe/d and partners Eni in the Congolese assets that Eni bought from Maurel & Prom. On February 1, 2008 Eni declared its recommended offer to be wholly unconditional. At the same date, Eni held an 85% stake in the company share capital including received valid acceptances representing 60% of Burren's share capital and a 24.9% of share capital purchased on the open market in December 2007.
Eni signed a major petroleum agreement with NOC, the Libyan National Oil Corporation. The agreement provides for the extention of the duration of Eni's mineral rights in Libya and the launch of large projects aiming at monetizing substantial gas reserves and overhauling offshore exploration activities.
The company also signed a gas sale agreement between the consortium conducting operations at the Karachaganak field (Eni is co-operator with a 32.5% stake) and KazRosGaz, a joint venture established by the Kazakh and Russian companies KazMunaiGaz and Gazprom. This agreement lays the foundations for the development of gas reserves of the field.
Eni acquired a 13.6% stake in Angola LNG Ltd Consortium responsible for the construction of an LNG plant. It will be designed with a capacity to process one bcf/d of natural gas and produce 5.2 mmtonnes a year of LNG and related products.
The company acquired a 70% interest in the Nikaitchuq oilfield in Alaska, in which Eni reached both the 100% ownership and the operatorship. Production start-up is expected at the end of 2009.
In the U.S. Gulf of Mexico the company were awarded 26 new exploration licenses following an international bid procedure. The acquired acreage is estimated to have a significant mineral potential and is located near to Eni's production facilities in the area.
Eni signed an agreement to extend duration of the development and production licence for oil fields of Block 403 (Eni 50%) with Sonatrach in Algeria. In 2007 production from this block represented approximately 14% of Eni's total production in the country.
A framework agreement was signed with Gazprom to build the South Stream pipeline system which is expected to import to Europe volumes of natural gas produced in Russia across the Black Sea.
Eni acquired a significant stake in Altergaz, the main independent operator in the French gas market. Eni plans to support Altergaz development in the French retail and small enterprises segments, through a 10 years supply contract of 1.3 bcm gas volumes per year.
The company purchased 102 retail stations in Central-Eastern Europe and a 16.11% stake in the Czech Refining Company, increasing Eni's ownership interest to 32.4% equal to a local refining capacity of 2.6 mmtonnes per year.
Galp Energia, in accordance with the agreements signed in December 2005 between majority shareholders (Eni 33.34%, AmorimEnergia and Caixa Geral de Depósitos), exercised its call option for the acquisition of Eni's Agip branded oil products marketing activities in the Iberian region both in the retail and wholesale markets. The transaction, subject to approval from antitrust authorities, includes 371 Eni'service stations. The closing is expected in June 2008.
Post closing events
Agreement for the development project of the Kashagan oilfield
On January 14, 2008, all parties to the North Caspian Sea Production Sharing Agreement (NCSPSA) consortium and the Kazakh authorities signed a memorandum of understanding to settle a dispute commenced in August 2007 regarding conditions and rights for developing and exploiting the Kashagan field. Management believes this field to be the most important discovery in the world in the past thirty years. The agreement establishes a renewed economic equilibrium of the contract in consideration of changed market conditions and provides stability for the project execution. The material terms of the agreement are: (i) the proportional dilution of the participating interests of all the international members of the Kashagan consortium allowing the national Kazakh company KazMunayGas' stake to increase matching that of the four major shareholders at 16.81%, effective January 1, 2008. The Kazakh partner will pay to the other co-venturers an aggregate amount of US $1.78 billion; (ii) a value transfer package to be implemented through changes to the terms of the NCSPSA, the amount of which will vary in proportion to future levels of oil prices. Eni is expected to contribute to the value transfer package according to its new participating interest in the project (16.81%); (iii) an increased role of the Kazakh partner in operations and a new operating and governance model which will entail a greater involvement of the major international partners.
Although the project was continuing during the negotiation process, its progress was delayed. Parties have therefore agreed that Eni as operator will file with the Kazakh authorities a revised expenditure and schedule for the execution of the phase one by the end of March.
