• Adjusted net profit: down by 27.8% to €1.89 billion for the third quarter and down by 15.7% to €6.79 billion for the first nine months
• Net profit: down by 11.4% to €2.15 billion for the third quarter and down by 9% to €7 billion for the first nine months
• Cash flow: €3.37 billion for the third quarter (€13.05 billion for the first nine months)
• Expenditures on capital and exploration projects for the third quarter were up 46% to €2.68 billion (up 41.9% to €6.94 billion for the nine months)
• Oil and gas production for the third quarter was down by 2.9% to 1.66 million boe/d and down 2.9% for the first nine months. Previous guidance for a production level in line with 2006 reaffirmed, under the assumption of full-year Brent crude oil price at $55 per barrel as per Eni’s four-year plan
• Gas sales for the third quarter: up 4.4% to 19.74 bcm (down by 3.2% for the first nine months). Previous guidance for light year-on-year sales growth reaffirmed, supported by expansion in target European markets
Eni, the international oil and gas company, announces its group results for the third quarter and the first nine months of 2007 (unaudited).
Paolo Scaroni, Chief Executive Officer, commented:
“Eni has delivered another set of solid results. The third quarter was impacted by the negative effect of the appreciation of the euro against the dollar, which more than offset the benefit of high oil prices, and weaker refining and natural gas margins. Eni continues to strengthen its position in its key markets and in the world’s leading oil regions. I am confident that 2007 will be another excellent year for the Company.”
Financial highlights
Third Quarter of 2007
Adjusted operating profit was €4.25 billion, down 17.2% from the third quarter of 2006. Results in the Exploration & Production division were impacted by the euro’s appreciation against the dollar (up 7.9%), lower sold production volumes and rising costs and results in the Refining & Marketing division were impacted by declining refining margins.
Adjusted net profit was down 27.8% to €1.89 billion, mainly as a result of the reduced operating profit, coupled with an increase recorded in the Group tax-rate on an adjusted basis (from 48.8% to 53%) owing mainly to an increase recorded in the upstream business.
Expenditure on capital and exploratory projects for the third quarter was up 46% from a year ago to €2.68 billion and mainly related to the finding and development of oil and gas reserves and the upgrading of international and domestic gas transportation infrastructure and refineries.
Net borrowings amounting to €11.43 billion as of September 30, 2007 increased by €2.31 billion in the third quarter due to expenditures on capital and exploratory projects (€2.68 billion), and the acquisition of upstream properties offshore in the Gulf of Mexico (approximately €3.5 billion) and downstream oil assets (€0.2 billion). These cash outflows were partly absorbed by net cash provided by operating activities (€3.37 billion).
First nine months of 2007
Adjusted operating profit for the first nine months was €13.69 billion, down 12.9% from a year ago. A weaker operating performance reported by the Exploration & Production and Refining & Marketing divisions was partly offset by the improved operating performance in the Engineering & Construction, Petrochemicals and Gas & Power divisions.
Adjusted net profit was down 15.7% to €6.79 billion, mainly as a result of the decreased operating profit, coupled with an increase recorded in the Group tax-rate on an adjusted basis (from 48.5% to 49.1%).
Net borrowings at period-end was €11.43 billion, up €4.66 billion from December 31, 2006. Main cash outflows for the period were: €6.94 billion for expenditures on capital and exploratory projects, €4.7 billion for the acquisition of upstream and downstream properties, €3.73 billion for the acquisition of 20% and 60% interests in OAO Gazprom Neft and three Russian gas companies, respectively, as part of a bid procedure for ex-Yukos assets; €2.38 billion for dividend payment and €486 million for the repurchase of own shares. These outflows were partly absorbed by net cash provided by operating activities coming in at €13.05 billion.
Return on Average Capital Employed (ROACE)1 calculated on an adjusted basis for the twelve-month period ending September 30, 2007 was 19.5% (23.9% for the twelve-month period ending September 30, 2006). – Ratio of net borrowings to shareholders’ equity including minority interest – leverage1 – increased to 0.26 from 0.16 at the end of 2006.
Operational highlights
Third Quarter of 2007
Oil and natural gas production for the third quarter averaged 1.659 mmboe/d, a decrease of 2.9% compared with the third quarter of 2006 mainly due to disruptions in Nigeria owing to continuing social unrest, unplanned facility shutdowns and technical issues particularly in the North Sea, also as a result of an accident that occured to the CATS pipeline in the United Kingdom, as well as mature field declines. Partially offsetting these effects was the benefit of the acquired assets in the Gulf of Mexico and in Congo as well as the organic growth achieved in Libya and Kazakhstan.
Eni’s worldwide natural gas sales were 19.74 bcm, up 4.4%, driven by higher sales volumes achieved in international markets, particularly in Spain, Germany/Austria and France, and in LNG sales in both the Asian and North American markets.
The trading environment was unfavourable, despite the fact that higher Brent crude prices were recorded averaging $74.87 per barrel, up 7.7% compared to the third quarter 2006. The benefit of higher oil prices was more than offset by the appreciation of the euro over the dollar (up 7.9%). Also, realized refining margins decreased significantly due to the worsening of the ratio between prices of main distillates and Brent quotations (the margin on Brent was down 5.4%) in addition to the narrowing of price differentials between light and heavy crude qualities that penalized Eni’s complex throughputs by reducing the competitive advantage to process low-cost feedstock. Gas selling margins decreased due to an unfavourable trading environment reflecting indexation mechanisms of purchase/selling prices.
First nine months of 2007
Oil and natural gas production for the first nine months averaged 1.71 mmboe/d, a decrease of 2.9% compared with the first nine months of 2006. Production performance was impacted by events in Nigeria, unplanned shutdowns, and mature field declines. The first nine months production was also affected by the loss of production at the Venezuelan Dación oilfield as a consequence of the unilateral cancellation of the service agreement for the field exploitation by the Venezuelan State Oil Company PDVSA which took effect on April 1, 2006. Partially offsetting these effects was the benefit of the acquired assets in the Gulf of Mexico and in Congo as well as the organic growth achieved in Libya and Kazakhstan.
Eni’s worldwide natural gas sales were down 3.2% to 68.31 bcm due to lower European gas demand in the first quarter from the unusually mild winter weather.
Overall the trading environment was unfavourable due to the appreciation of the euro over the dollar (up 8.0%), lower realized refining margins, in particular on complex throughputs, and lower gas selling margins due to adverse trends in energy parameters to which purchase and selling prices are indexed. In the first nine months a slight increase in oil prices (up 0.3%) was recorded with Brent crude prices averaging $67.13 per barrel; when converted to euros, crude oil prices recorded a 7.2% drop.
Strategic agreement with the Libyan National Oil Company
As part of Eni’s strategic partnership with the Libyan National Oil Company, on October 16, 2007, both parties signed a major industrial agreement aimed at:
– Extending the duration of Eni’s mineral rights in Libya by a 25-year term, with the possibility of a further five-year extension for oil properties till 2042 and a ten-year extension for gas properties till 2047. This will enable Eni to develop its long-life producing fields over a longer time frame by applying its advanced techniques for maximizing the recoverability of hydrocarbons;
– Monetizing additional and substantial gas reserves by expanding Libya’s gas export capacity by 8 bcm/y. The planned expansion will be achieved through the upgrading of the Greenstream export line by 3 bcm/y, which will increase export capacity to Italy, and through the construction of a new LNG plant of 5 bcm/y for worldwide markets; and
– Overhauling the exploration activities in areas where Eni is already present. The two partners estimated that the planned initiatives will involve expenditures of approximately US$28 billion over 10 years. This deal further strengthens Eni’s competitive position in Libya, reaffirming its leadership among the international oil companies engaged in this Country.
Status of the Kashagan Project
– In late June 2007 Agip KCO, as operator of the Kashagan oilfield (18.52 per cent stake), located offshore in the Caspian Sea in Kazakhstan, filed certain revisions to the sanctioned development plan of the field with the Kazakh Authorities. These revisions confirmed, among other things, a rescheduling of the production start-up to 2010. The Kazakh Authorities rejected the proposed revisions to the sanctioned development plan. In August 2007, the Government of the Kazakh Republic sent the companies forming the North Caspian Sea Production Sharing Agreement (“NCSPSA”) consortium a notice of dispute alleging failure on the part of the consortium to fulfil certain contractual obligations and violation of the Republic’s laws. All parties are in discussions aimed at resolving the dispute on amicable terms and have agreed that these discussions will continue beyond the 22 October, 2007 contractual deadline.
Galp Energia plans to exercise its call option on downstream oil activities in Spain and Portugal
Galp Energia, in accordance with the agreements signed in December 2005 between majority shareholders (Eni 33.34%, Amorim Energia and Caixa General de Depositos), announced the intention to exercise its call option for the acquisition of Eni’s Agip branded oil products marketing activities. The option excludes the lubricants business in Spain and Portugal, both in the retail and wholesale markets. Eni’s retail activity in the Iberian region includes more than 350 service stations. The transaction is subject to approval from antitrust authorities.
Other initiatives
– On October 19, 2007 Saipem acquired almost the total interest in Frigstad Discoverer Invest Ltd listed on the Norweigen Stock Exchange. This company is engaged in ultra-deep offshore drilling activities by means of an ongoing project for the construction of the semi-submersible rig D90 and is listed on the Norwegian stock exchange. This vessel is expected to be able to drill wells in water depths of up to 3,600 metres. Operations are expected to begin by late 2009 and the transaction will include approximately €520 million of capital expenditure. This will include the purchase of Frigstad Discoverer Invest Ltd, as well as other capital expenditure necessary to complete the vessel.
– Eni was awarded 26 new exploration licenses in the Gulf of Mexico following an international bid procedure. The acquired acreage is estimated to have significant mineral potential and is located nearby other Eni’s production facilities. The transaction is subject to approval from antitrust authorities.
– Eni and Sonatrach signed an agreement to extend the terms of the development and production licence for oil fields of Block 403 (Eni 50%) in Algeria. In 2006 production from this block represented approximately 13% of Eni’s total production in the Country.
