ENI Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 28, 2023

There are 18 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to ENI's 2023 First Half Results Conference Call, hosted by Mr. Claudio Descalci, Chief Executive Officer. For the duration of the call, you will be in a listen only mode. However, at the end of the call, you will have the I am now handing you over to your host to begin today's conference. Thank you.

Speaker 1

Thank you. Welcome to the 2nd quarter and first half twenty twenty three result conference call. In the first half twenty twenty three in the quarter, Eni has delivered excellent operating and financial results With significant steps forward in progressing the execution of strategy across all the businesses, showing strong financial resilience. In 2023, we outperformed in terms of both underlying EBIT and CFFO versus expectation. And EBIT as a scenario has weakened it.

Speaker 1

We have been able to fund our CapEx, begin our shareholder buyback alongside paying our quarterly dividend and complete Algeria M and A and biorefinery purchase in the U. S. In this quarter, we have agreed The purchase of the remaining 64% of Novament, a leading player in circular and sustainable bioplastic, aligned with our strategy for Versalis. Closing of the deal of this deal is expected before the year end, following antitrust authorizations. Our acquisition of Neptune Energy announced in June had A portfolio complementarity high quality and, crucially, low emission asset that contribute toward our shift to gas.

Speaker 1

The deal is immediately accretive and has significant synergies of at least €500,000,000 with further upside. It also adds materiality to our integrated GGP activities, and it is a major step in ensuring long term supply to our European gas Completion of the deal is planned for the Q1 of 2024. Our agreement to buy additional interest in Indonesia from Chevron announced this week deepens our position in the region. Further, synergistically supporting our targeted growth in LNG in the Asia Pacific region. At the same time, we continue to rebalance our portfolio, simplifying the business and optimize our capital.

Speaker 1

We completed the sale of a minority stake in the TransMed pipeline in January and announced the sale of mature production in Congo With additional transitions in the coming months. During the transition, it is critical to be fast in delivering and efficient in spending. These elements are part of our strategic approach that really have had fundamental impact over the past decade. For instance, in Natural Resources, we have shifted E and P toward the focus on time to market and the efficient use of capital through our dual aspiration model and fast track development. The shift In profitability of GGP became evident in late 2021 as we leveraged our Upstream Equity Position.

Speaker 1

The Russian invasion of Ukraine accelerated the plan that was already in place With the asset positions we have built, leveraging on our distinctive approach in all of the countries where we operate based on promotional local economy and social development. This is delivering materials out this year, but also in the years to come. Plenitude has leveraged its large customer basis to increase renewable generating capacity by over 10 times in 3 years by the end of 2023. And we expect to more than double this again by 2026. In a single year, we will have also doubled our EV charging points.

Speaker 1

In the Downstream, With biorefineries, we are at the center of the transition. We can capture new growth opportunities and transform traditional asset. With the 2 existing refineries, Venice and Gela, and now with the Chamblett plant in Louisiana, we are a leading player in the market, focusing our product on HVO and sustainable aviation fuel for hard to abate transportation demand. With further planned projects at Livorno in Italy and Perga in Malaysia, plus additional growth options, We have good visibility on our target of over 3,000,000 tonnes capacity by 2025 And over 5,000,000 tonnes by 2,030. With sustainable mobility, We combine biorefining with our marketing activities to provide decarbonization solution for our mobile customers.

Speaker 1

On the financial side, furthermore, the satellite structures is an organizational approach that complements our operational initiatives respond to a unique capital requirement of our new businesses and the different drivers in their value. Our strategic initiatives have translated into a financial more profitable and resilient company with the capacity to invest to address the dilemma and generate future returns to ensure that this is sustainable. Hence, if you look at our CFFO, we have grown it over time, Meaning, we are generating significantly more value at a given oil price than we were a decade ago. This momentum will continue across the current 4 year plan, where we see strong per share CAG in a constant scenario. The story is similar with our return on capital employed, benefiting from a streamlined cost structure, stronger focus on investment quality and capital productivity.

Speaker 1

We therefore expect to generate much improved average ROACE across our planned period. Higher resulting Free cash flow has meant we have significantly reduced net debt and leverage to around half of the level of the few years ago, making the company both more resilient, but also able to respond to Finally, but crucially, the strength of our financial model And the greater diversity of strong businesses has allowed our shift to a CFFO based Distribution policy with a well underpinned dividend and buyback that sees investor participate in the upside. 20222023 will represent significantly the best Per share distribution by the company in its history. Focusing now on financials. 2nd quarter economic conditions were more challenging.

Speaker 1

Brent averaged under $80 per barrel, Marginally lower than Q1 and well down on 2022. European hub natgas was $15 per mino BTU, close to half of last year and 30% lower than first quarter. The CERM refining margin was around 60% less than Q2 2022 and 40% below 1st quarter. Considering this worst scenario in 2023 with respect To 2022, NES delivered strong resilient result in the first half of the year. EBIT In the first half was €8,000,000,000 with €3,400,000,000 in the 2nd quarter, providing clear evidence of the business resisting a weaker macro scenario.

Speaker 1

In addition, our satellite and associates such as Bar, Azul and Adnanq are important contributors with around €900,000,000 in adjusted profit in the first half. Net profit before tax and CFFO over the half amounted to €8,700,000,000 9,500,000,000 respectively, with 3 point €7,000,000,000 4,200,000,000 coming in the 2nd quarter. Leverage Pre IFRS is only marginally growing at 1% over each quarter and is now 15%. Let's move on to the business segment in more details. Obscene production averaged 1,610,000 bar per day in the quarter, up 2% year on year and above our guidance of 1,600,000 barrels per day, helped by growth in Mozambique and Mexico and production recovery in Kazakhstan.

Speaker 1

We are making good progress on our full year guidance that we confirm remains 1.63 to 1.6 7,000,000 barrels per day or around 2.5% up at the midpoint, implying, as expected, An acceleration in the second half of twenty twenty three, thanks to the new start ups and ramp ups. Above plant volumes plus a continued focus on cost management helped to part offset the impact of fall in the oil and natural gas prices. Pretax earnings were added by significant contribution from our key satellites, VAR and ZUL. GGP had another excellent quarter, generating over €1,000,000,000 of EBIT in the 2nd quarter and EUR 2,500,000,000 for the half year. This is well ahead of the first half twenty twenty two and second quarter twenty twenty two, despite a significantly lower gas price.

Speaker 1

Result substantially benefited from renegotiation and settlement related to prior periods, but also continued asset optimization. In response to the cut in supply from Russia, we have significantly reworked the portfolio to ensure security of supply. After such a strong first half, We are raising our GDP guidance for full year EBIT to EUR 2,700,000,000 to EUR 3,000,000,000 from the previous one that was in the range from €2,000,000,000 to €2,200,000,000 Our traditional refining results have been impacted by the fall in the refining margin and negative crude grade differential and crack spreads Not captured in the CERN benchmark, while utilization has also been lower. However, Our marketing result was good, helping sustainable mobility and reflecting healthy demand for transportation fuels. After closing the transaction with PBF to form our fifty-fifty San Bernard Joint Venture in June, We expect the plant in Louisiana to make a positive contribution to sustainable mobility net Income this year well in advance of the original plan.

Speaker 1

Despite Highly volatile and challenging condition over the past 2, 3 years, Plenitude has delivered on both its operating and financial target. This is testimony to the quality of the integrated customer based model. With 2.5 gigawatts installed at the half year, Prelude is on course to have Over 3 gigawatts of renewal capacity by the end of 2023, almost 50% up year over year. In the semester, planning to generate €470,000,000 of EBITDA, Well, over half of the previous full year target of €700,000,000 and we are now raising target to €800,000,000 Our tax rate picked up in Q2 2023 To 47%, mainly through mix effect and higher E and P rate that reflect the U. K.

Speaker 1

Windfall tax impact and lower prices. Cash conversion was excellent With strong CFFO, able to fund most of the CapEx, portfolio activity, the dividend, the buyback program of 400,000,000 euro and our extra profit obligation that amounted to around €400,000,000 in the quarter. Quarterly CapEx of €2,600,000,000 reflects work to complete the main project of the year As we expected, in any case, we will reduce full year CapEx to below €9,000,000,000 down From the €9,200,000,000 previously estimated and the €9,500,000,000 initially guided, Reflecting continued optimization and efficiency work. Business performance, CapEx efficiency And timing flexibility provide robust basis for our 2,200,000,000 share buyback. In summary, Q2 2023 was a strong quarter for Rainy and one with a clear and valuable strategic transformation.

Speaker 1

The scenario was not a tailwind for us, And yet, we delivered one of our best ever quarters. We have raised EBIT guidance for both GGP and Plenitude. And we see underlying improvement in E and P and sustainable mobility as well. We estimate that this will amount to around EUR 2,000,000,000 of additional underlying EBIT and EUR 1,300,000,000 of additional Underlying cash flow in 2023, equivalent to around 2 percentage point on return. At the same time, the acquisition of Neptune Energy and the continuous advance of Plenitude and sustainable mobility demonstrate Our commitment to rapid, effective and value enhancing management of the opportunities and challenges presented by the Energy Trilemma.

Speaker 1

That concludes my remark. And along with any top manager, I welcome your questions. Thank you.

Operator

Thank you, Mr. Conference operator. We will now begin the question and answer session. Descalci. The first question comes from Biraj Borkhataria of RBC.

Speaker 2

Hi, thanks for taking my questions. The first one is on your cash generation in the quarter. It looks like it was supported by the various dividends from affiliates. I know you had the ADNOC Dividend and you get the Vaal on regularly. Just a question on Azul.

Speaker 2

Could you quantify the dividend received from Azul and confirm if that's the sort of sustainable level Going forward or if that was a one off payment there? And then second question is on GDP. Obviously, that was the big driver of the beat this quarter. The team cited some €800,000,000 or so of renegotiations. I just wondered if you could help me, in layman's terms, You don't understand what exactly is going on here because that business is effectively buying gas and then selling that gas Descalci.

Speaker 2

Customers in Europe and then GDP is making the margin in the middle. But presumably, if you sign a contract with someone to buy or sell, you'd expect them to honor it. But obviously, You have these regular renegotiations. So why what exactly is going on there? And why is the other side of the party effectively

Speaker 1

Thank you for all the questions. The first question is very, very short. Yes, Azul is a sustainable level of dividend because it's a growing company with a lot of assets, A lot of cash flow, returns and potential in term of reserve and resources that we discover. Otherwise, we were not able to I define this business combination. So yes, it's not one shot.

Speaker 1

It's a long term shot, Azul. And we are the first Company now is a business combination in Angola. 2nd, GGP. I just Say a few words about GGP than Christian and maybe Francesca can complete. I think that We just want to talk about our business model.

Speaker 1

We're not just a we're not A company that buy gas from a 3rd party and sell gas from a 3rd party, that was the whole model. All the work we have done In the last 10 years, was to be able to stay in the alone value chain. For that reason, we put together The GGP, the gas component with the EMP because we source ourselves. We are selling our gas, pipe and LNG, and that is the new structure that we built in the last years. So we are not in the model we buy gas from Russia, we sell gas to somebody else.

Speaker 1

So we are along the value chain, and that is the upside. And that is also one of the reason All the good results. So now I give the floor to Christian to complete the answer.

Speaker 3

Yes. So in specific, I mean, related to these renegotiation and contractual triggers effects, You have to bear in mind that in these long term supply contracts, there are contractual clauses And that provides for parties to if they cannot find a solution in terms of commercial settlement Provide space for arbitration and eventually settlement of those legal proceedings. So what happened actually in this quarter is that we found, With some of our suppliers, a settlement of previous period, which were accrued since a few years back or We had contractual triggers in the supply contract that allowed us to retake some of the cash flows that actually were paid to the counterparty again back a few years back. So I think those are If you want a specific feature of the long term contracts that we simply managed to the benefit of our company.

Speaker 2

And sorry, just one follow-up. But are you expecting Do you have are these coming up on a regular basis? Or are they has any visibility on that going forward in the rest of the year and into 2024? How should we think about it?

Speaker 3

Well, look, yes, as I told you, these are a big part of the business. So I can already anticipate to you that, For example, the range in the guidance for the 2nd quarter for the 2nd semester is also linked to the fact that we have still A couple of those renegotiations pending, ongoing that we think that we are going to settle in the next 6 months. And this will clearly have an impact to our results. And also that's why there is this range between €2,700,000,000 and €3,000,000,000 guidance for the end of the year.

Speaker 2

Thank you very much.

Operator

The next question is from Oswald Clint of Bernstein.

Speaker 4

Yes, good afternoon. Thank you. Yes, the first question I wanted to ask about the CapEx. Now, 2nd quarter revising it back down again, Probably 6% or 7%. I remember at the Capital Markets Day, you took it up 15% for the plan, and obviously, the market didn't take that particularly well.

Speaker 4

So Perhaps you could just talk a little bit more about what's happening here and the possibility of that continuing also into 2024 in terms of Potentially being revised down in the terms of CapEx. That's the first question. The second question, just to Claudio around your comments around best Shared distributions in the company's history last year and this year. But as we look forward and we think about the balance sheet, 15% leverage and The potential to really push that number even lower and sustain this attractive distribution. And what I'm thinking is here, You've been buying a lot, but you haven't really been selling a lot.

Speaker 4

And you're on track to find another 700,000,000 barrels this year. We've just seen a little deal with Congo, but what's the potential to start selling more perhaps less accretive barrels through time? Thank you.

Speaker 1

Thank you. First of all, about CapEx, just Give me the opportunity to give some our view about the CapEx, then we can go into the details. Clearly, when we started the work on CapEx and we presented to our strategy presentation the CapEx, We were still analyzing all the embedded consequences of increasing CapEx and finalized some projects. So that was figures That represent the situation at that time that we continue to work on. So all E and P, Guido And the team continue and also Pino in our endeavor that is mainly E and P continue to work to create efficiency to fine tuning.

Speaker 1

So it's not that we are cutting CapEx or reducing activity. It's really inside the same project, inside the same activity that we have they have been able. They did a really great job to work out a different profile reducing. So we passed from 9.5 And then the first revision, 9.2%, and now below or around 9%. Additional space for this year, I don't think so because I think that we performed a very good reduction.

Speaker 1

For 2024 It's something that the team is working on. Clearly, we want to extract the maximum value. We will reduce our cash neutrality. We want to Grow because we are growing in production, as we demonstrated, without but with the optimization of CapEx. So that is a continued Our people are doing on a daily basis.

Speaker 1

So I'm not surprised that in a volatile situation With the inflection and volatile situation from any point of view, you can give a number, then you try to get A better number. That is our work and that's what we are continuing to do. On M and A, M and A, I said last time that it's true. We made a strategic M and A, so with a sense, Along our strategy in term of gas, energy security, transformation of our business. So each M and A step was really linked to a piece of our puzzle, of our strategy You know that we are more in a we are falling more in organic growth than an M and A approach.

Speaker 1

But this time, We really acquired something that was really synergic and in line with our strategy and with our assets, Creating a lot of value. From the sale side, what we are doing okay, we did Congo, you say, a small one, It's a first but we have, as I said last time, we have other asset, Marginal asset tail asset that we are in the next month ready to firm out and to sell. So the M and A is continued to be consistent with what we said during the strategy. Then in the 4 year plan, we're going to have €1,000,000,000 positive overall from our M and A activity, though I don't know if Guido From one side, E and P and Francesca from M and A want to add something.

Speaker 5

The M and A, just to confirm that clearly, M and A in term of both of acquisition and disposal is a matter of lengthy negotiation and the course once the window is possible, is favorable, so you cannot expect Simultaneous management of the two sides of the M and A, but we can confirm that we are in a several number of Processes of disposal and these are maturing. You will see how this will be material and will reduce the overall net debt and the leverage that you are referring to.

Speaker 4

That's great. Thank you very much.

Speaker 6

And just, I mean, echoing what Claudio was saying on CapEx, A good part of the capital expenses have been already made in the first half of the year. The second half is lighter, although We are still continuing that work of optimization, and we are very confident to stay within the guided, if not better.

Speaker 4

Super. Thank you. Thank you.

Operator

The next question gentlemen is from Alessandro Pozzi of Mediobanca.

Speaker 7

Good afternoon. Thank you for taking my questions. I just wanted to go back to the GGP And whether you can clarify how much of the contract negotiations are embedded in the 2020 3 guidance. And once also you exclude that, what was the main reason for the upgrade in the guidance If we just look at the optimization part of GGP and also within this theme, What we are seeing now is very wide time spreads in the future market at the present. And I was wondering whether that Could be an opportunity that could be monetized and can generate potentially additional EBIT for the division.

Speaker 7

That's the first question. The second question is on Indonesia. You announced a new acquisition there. My understanding is that the consideration was rather limited, but potentially in terms of volumes, this could be a sizable acquisition that could bring 100,000 maybe more barrels in the next few years. And I was wondering if you give us a bit more color on the potential, on the CapEx required that you see there and whether there are obligations as well to drill more wells there.

Speaker 7

That's all for me.

Speaker 1

Okay. Thank you. So the first question is for Christian.

Speaker 3

Thank you. So in terms of the upgrade of the guidance, you can think of it 50% of that upgrade has been triggered by these contractual, let's say, triggers and renegotiation That were actually better than expected. And the other 50% instead is linked to the better, I would say, Trading and Optimization Environment and Margins. Yes, when it comes to the time frame that you are referring to, I that you're referring to the fact that between summer and winter now there is a spread which is in the range of €20 per megawatt hour. Yes, clearly, we are working on Trying to capture that opportunity in the market, given that the spread is surely interesting and sizable.

Speaker 3

Clearly, managing also the capital allocation that we do on that kind of opportunities because as you can imagine, storage also attract a lot of cash flow. Thank you.

Speaker 1

Thank you, sir. Guido can answer about Indonesia, please.

Speaker 6

Yes. On Indonesia, clearly, it's a very synergic acquisition. We leverage on the presence of our facilities there is a tieback. And so being at Tybeck and being very close to our facilities, it will place the development cost Per barrel to the lower range, and we may say that we are in the one digit region of the CapEx per barrel developed, maybe nice.

Speaker 1

And we have also 2 others. We have Bontang. We have also Bon Ton that increased the value of this acquisition. It's not just in Stream acquisition, as I said before, is really the integration, is the model. We have the we start from the resources.

Speaker 1

We develop, we fund, we develop and then we can market it. So it's really there are a lot of Upside potential in this acquisition.

Speaker 7

Thank you. In terms of volumes, Can you maybe give us an indication of when we could see the first gas from those developments?

Speaker 6

It'll be beginning of 2027.

Speaker 7

Around 100,000 crores, Is that the

Speaker 8

potential target?

Speaker 6

It will extend the plateau of our Down Creek FPU For many more years than what is planned now, of course. Okay.

Speaker 7

Thank you. I'll turn it back.

Operator

The next question is from Alastair Syme of Citi. Please. I

Speaker 9

wanted to ask about Italian Sorry,

Operator

I apologize. We cut off your first part of your question. Please repeat.

Speaker 9

Sorry, I'll start again. I just wanted to ask about Italian gas demand, which of course remains well below where it was 2 years ago. Can you give A picture of what you think your customers are doing, particularly on the industrial side, given Italy has some big energy intensive industries, I'm thinking Things like ceramics. Prices are still high, but I guess a lot less high than they were. So is there any sign that customers are thinking of picking up Back on consumption.

Speaker 9

Thank

Speaker 3

you. Yes. Look, the When it comes to the industrial, let's say, behavior, as you can imagine, we have seen starting from last summer when the prices actually were very high, A reduction of industrial activity, mainly linked to the energy intensive industries that either reduce the shifts or I reduced the orders to be managed. And the consumption was around on average, around 15 So and this has been there since last Now in the last couple of months, we have seen some timid, very timid Recovery in terms of consumption, which in turns means that there is also recovery in the industrial activity, but it's still very timid. And also bear in mind that some of these industries were actually reducing the impact

Speaker 9

Do you have a view whether any of this has been permanently taken offline? Like will it all come back at the right price, do you think?

Speaker 3

Sorry, I didn't get your question.

Speaker 5

How much is structural? How much it will look?

Speaker 1

How much Structural or if you we can come back to the past.

Speaker 3

Well, we haven't seen the actual closures If you intend closures. Now we haven't seen closures. We've seen reduction of activity. So in principle, if the environment will get back, I think this demand could come back.

Speaker 1

As in the past. Okay,

Speaker 2

great. Thank you very much

Speaker 8

for the color. Thank you.

Operator

Sorry, sir. I apologize. We have Henry Tarr from Berenberg for the next question.

Speaker 10

Hi. Thanks for taking my questions. 2, please. 1, just back on the GGP side again. Is Damietta a meaningful part of the GGP And then I just wondered whether you could name some of the counterparties you're renegotiating with on the supply side Or not.

Speaker 10

And then the second question, I just wonder whether you see a change to sort of downstream Competitive positioning with the power and gas prices in Europe the way they are now.

Speaker 2

Do you think it's a kind of

Speaker 10

a structural Shift into higher gas and power prices in Europe and whether that might change the strategy for for Salas and for some of your downstream business. Thank you.

Speaker 3

Look, the meter is clearly a crucial part of our activity, especially in the LNG, and It's an important addition to our overall energy portfolio. So clearly, it's part Of our results and the performance is clearly also partly linked to the Demet operations, both clearly on the plant side and also on the LNG side. In terms of renegotiation and counterparts, I mean, given that those are confidential discussion, I would rather not mention any of them.

Speaker 2

Okay.

Speaker 11

About the downstream strategy, of course, we didn't change the downstream strategy that because of the cost of energy, first of all, because last year when the cost of energy was 10x Descalci. We have been in condition to shift from gas to other Energy vector reducing dramatically the cost of gas. And now We are maintaining more or less the same sector, but we are not in the trouble for this.

Speaker 12

Yes, let me make a few comments about industrial sectors, specific about chemistry. We think that over the last 2 years, European chemistry is driving to a high end application because, of course, today, Europe is already facing some challenge in term of competitiveness compared to other regions, especially in North America In Asia for the high cost of gas or let's say higher cost of gas. So what happened over the last 5 years is speeding up in Europe in terms of specialization of the market and is what we announced already 3 years ago for Versalis. And so we are continuing our journey.

Speaker 1

Good. Thank you.

Operator

The next question is from Henri Patricot of UBS.

Speaker 8

Yes. Hello, everyone. Thanks for the update. I have two questions, please, on some changes you made to the guidance for 2023 and what are their Implications for late years. So we're starting with Plan 2, which you raised in Saiki the EBITDA guidance.

Speaker 8

Is that particularly just Did you bring a little bit faster than you expected? Or should you think that maybe the 20, 25 guidance is looking more Conservative now. And similarly, for the Danslim side where you cut the guidance for EBIT for this year, does it make The longer term 'twenty six target more challenging to achieve? Or is it really from the cycle specific to this year? Thank you.

Speaker 13

Okay. The Harry, regarding Plenitude guidance, This year, the market was stabilizing a little bit in terms of volatility and level of prices. So we have been able to Being very effective in our commercial strategy and making good result on the retail activity, both in Italy and also abroad in Europe, where the emergency measures taken last year to defend the most Vulnerable clients have been taken out, so now the condition in the market are a little bit better, and we can compete with other operators Very well. So it is a better result of this year. We maintain our level of result also for the next year.

Speaker 5

About the guidance related to the downstream, you were referring to clearly, This is impacted by more than from the nominal view value that you can see on the SERM, the margin that you calculate on the basis of benchmark By a weakening environment, in particular related to the crack spread, to the differential between crudes and also by the reduction of the gas pricing that was not clear, didn't impact our performance as we have already Last year, switched to a different source of energy. Therefore, that reference has reduced The overall performance of the Downstream have you seen in this quarter, but we were substantially able to compensate this effect On a like for like basis, so reassuming similar level of differential, etcetera. And therefore, that is a confirmation of a guidance in a lower environment at the end.

Speaker 11

Yes. Additionally, it's important to say that in the second half with the drop of The margin of the CERN, we performed all the maintenance in the plant. So we are ready to gain to the fact that Starting from July, the spread and the crack of gasoline and gasoil are increasing a lot. And we are really in the full driving season. So we expect to have a Some are quite bullish in terms of margin.

Speaker 8

That's it. Thank you.

Operator

The next question is from Irene Himona of Societe Generale.

Speaker 14

Thank you very much. My first question is going back to CapEx, if I may. It's quite admirable that You're continuing to optimize CapEx and to find meaningful efficiencies despite what is clearly Hi, external inflation environment. And I just wanted to ask what average inflation rates do you see in the, Let's say the main procurement categories in your upstream. And then my second question, If we think about investor distribution, the balance sheet, the weakening macro and your increasing efficiencies, I mean, if The macro were to continue to weaken into 2024.

Speaker 14

Would you then be prepared to use the balance sheet for a period and re leverage from what is a low level currently to sustain Distributions even if they were above your targeted range of CFO? Thank you.

Speaker 6

Okay. So thanks for the question. For the CapEx and for the cost inflation, we have seen 10% From 2021 to 2022, and we are seeing a 7% year on year from 2022 to 2023 and onward, which is already factored in Our CapEx guidance of the year and of the following years.

Speaker 1

So for the second question Related to the distribution. Clearly, as we stated in our distribution policy at the beginning of the year, And we changed it, and we gave a priority to it and to our investors. So the answer is yes. We can I don't believe in a low level for a long time in any case because I talk about demand, supply and all the different dynamics because the demand is increasing? And it's not just a question of increasing cost, but it's that we need supply.

Speaker 1

So I think that there is a good dynamics. But in the case, We have some bad periods. We cope with it. So it's not I think that the priority, as I said, is The admiration and the leverage and the debt is good. For that reason, we try to keep this leverage very low, And that is important for us to be flexible.

Speaker 1

Flexible means that we can continue to give the right Lever of remuneration to our investors and have a flexibility in our business, in our CapEx, And our debt to continue and to be stable as a company and also foreseeable and a company that don't give surprise. So the answer is yes, we can do that.

Speaker 14

Thank you very much.

Operator

The next question is from Martin Ratz of Morgan Stanley.

Speaker 15

Yes. Hi. Hello. Quite a few questions have already been asked, but I wanted to ask you Two gas related questions. The updated guidance for GGP, the 2.7% to 3.0% figure.

Speaker 15

Can you say a few words about how sensitive That is for to TTF prices. The context is, of course, that inventory is high and they continue to fill and we may or may not Hit full storage and then funny things can happen to the TTF price possibly. So I was wondering how robust That guidance is or whether it can still swing around with European gas prices. And sort of following up on the earlier question on the contango The €20 a megawatt hour that you mentioned. I was wondering if that now pays for floating LNG storage given where current LNG tanker rates are.

Speaker 15

Little bit difficult to sort of figure out in a seat like ours, but you're probably a bit closer to it, so I wanted to ask.

Speaker 3

Yes, thank you. So the guidance is robust to the TTF flat price. I mean, we have a very, very limited exposure to the flat price this year, So this would not impact. Clearly, if you want, the impact could be on the spreads. So I mean, flat a lower spread means lower Spreads, so this could be this could have an impact, but it's a different level.

Speaker 3

When it comes to the floating storage, Yes, sure. I mean, the economics today are robust for a floating storage opportunity. The fact is that given the boil off, You can, let's say, build this activity for a range of up to 1 or 2 months maximum. So let's say, in order to take advantage Of that price in October, November, you will see ships floating around probably around August, September, not before.

Speaker 15

Okay. That's useful. Thank you.

Operator

The next question is from Massimo Bonazzoli of Equita.

Speaker 8

Hello. Good afternoon. Thank you for taking my question. The first two questions are around the Italian National Recovery and Resilience If I understood correctly, Raven CCS project was just excluded from the plan. What are the implications, if any, for the project?

Speaker 8

And the second question is still on the NRRP. What could be instead the support for the conversion to biorefineries, for example, for Livorno? And the third question just for our models, if you can please provide an indication on expected upspring tax rate in the second half? Thank you.

Speaker 1

So for the first two questions, honestly, I don't have an answer because it just It's been issued yesterday, and we don't know exactly what is inside what is not inside. It's just speculation On the newspaper, now we are going we have to go through. I don't consider, honestly, In any case, any impact in the sense that we are going to do what is Economics, what is can create a profit, and that is For the transition and not only just for the transition, but when we talk about the dilemma, we need something that must be Sustainable for the environment, sustainable from an economic point of view, sustainable, affordable from a for the competitiveness. So it's not an issue. Clearly, if there is a support, it's welcome.

Speaker 1

If there is no, Something that we have to discover. So I don't have an answer for the two points yet. Maybe we can Francesco can respond to the 2 point.

Speaker 5

See, the more related to the tax rate, It will not particularly different from what you have seen in this quarter, so something that range between 45% to 47%. That clearly will depend on the Different contribution of the various businesses and also clearly the scenario. And as we were mentioning before, an improvement, for example, in refining, this will To keep it lower and clearly even higher price of brand, it will help too. So there will be a lot of moving parts, but there is a range.

Speaker 8

Great. Thank you.

Operator

The next question is from Bertrand Hodee of Kepler Cheuvreux.

Speaker 16

Yes. Hello and thank you for taking my question. Question around GDP Again, in at the last Capital Markets Day, you guided, if we exclude Initial 2023, you were guiding for a recurring, I would say, GDP contribution of around €600,000,000 to €700,000,000 EBIT level. Our recent development and volatility In gas market or recent, I would say, portfolio actions you've done could make you raise that guidance. Any color on that would be very helpful.

Speaker 16

Thank you.

Speaker 3

Sure. So you remember well, I mean, we were guiding last year around 600 to 700 for 20.24, 20 27. We have to acknowledge the fact that the market is still keeping a supporting trading environment. So I would say, I mean, from the time being, I would have an upward bias, so to speak, in terms of guidance for the next year.

Speaker 16

And maybe can I ask also a follow-up on Indonesia? I mean, those fields you've been acquired have been on the drawing board for probably 15 years and has been Back and forth delayed and finally not launched. And now you've so you've bought those assets, you have a different plan, It would not be, I would say, a greenfield development, but more tieback. And then you say it's going to be Fast track and you only see the production by 2027. So Can you help me reconcile

Speaker 2

those

Speaker 1

Yes, yes. We tried to help you. First of all, we go back to what Wido said and what you said 15 years. Clearly, 15 years ago, we didn't have this infrastructure that we built in with the junk Creek. So we can consider that kind of resources, trended resources Without infrastructure.

Speaker 1

Then we discovered John Creek and other field, other gas field. We developed our platform. We Add space in Bontang because 20 years ago, we didn't have enough space in Bontang because the gas depleted, so less production. So now there are the conditions. So the situation is not that this trended asset were stranded asset before it has to be stranded asset forever if there are different conditions.

Speaker 1

So that is a point, First point. 2nd, Wizzo didn't say fast track. They said just they asked him the date, and they said 2026, 2027, and that is in the sense the priority and the space that we find in our facilities. Because you said we don't want to invest in new facility, new trains. We had facility with a lot of gas.

Speaker 1

So now we're going to develop And then we put you guys inside. I hope that I helped you to reconcile this information.

Speaker 16

Yes, perfect. So what you implied is that in fact you don't have a lot of room On your existing Yanklin facility yet, but it's probably in 2 years, you will have room to have those tieback Gas field being connected to

Speaker 12

the facility.

Speaker 1

You are correct.

Speaker 2

Okay.

Speaker 16

Perfect. Thank you.

Operator

The next question is from Kim Fustier of HSBC.

Speaker 17

Hi, good afternoon all and thank you for taking my questions. Firstly, could you comment on the recent performance at Zohr and your Egyptian gas portfolio more broadly? There are media reports of production issues at Zohr. Your Egypt gas production is down 8% year on year and Egyptian LNG exports have dried up. So any color around that would be helpful.

Speaker 17

And then secondly, could you provide any updates around the Plenitude spin off, please? Thank you.

Speaker 6

We don't have issues of production in Egypt. Zohr is ranging between 2.2 and 2.4. We are managing the production. Clearly, there is a seasonal effect in Egypt. Summer season, the domestic demand is much, Much higher than the winter demand, and so this is reflected in the export and, of course, in the domestic production.

Speaker 5

About the spin off, it is a partial disposal to a strategic partner of minority stake of Plenitude. We are in a well advanced stage of negotiation. Clearly, negotiation will take time also there are a lot of details that are to be agreed, clearly in term of value, in term of governance. So I think that this is A program that is going according to the plan, and clearly, we will disclose once all the details will be fixed.

Speaker 17

That's right. Thank you.

Operator

Gentlemen, that was the final question. Would you like to make some any closing remarks?

Speaker 1

No, thank you. Thank you. Thank you. I want to thank everybody to attend this conference call. I think that we cover all the topics.

Speaker 1

So Thank you, and good vacation.

Operator

Ladies and gentlemen, thank you for participating in the A and A conference call. You may now disconnect your telephone.

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Earnings Conference Call
ENI Q2 2023
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