Good afternoon, ladies and gentlemen, and welcome to ENI'S 2018 Fourth Quarter and Full Year Results Conference Call, hosted by Mr. Claudio Descalzi, Chief Executive Officer. [Operator Instructions]. I will now hand your conference over to your host to begin. Please go ahead, sir.

Thank you. Good afternoon, and welcome to the 2018 full year results presentation. The transformation undertaken by ENI in the last year has allowed us in 2018 to further improve our results both from operational and financial point of view. We have been able to accelerate the implementation of our strategy, achieving remarkable milestones in terms of geographical diversification and in the rebalancing of our businesses. In terms of our priorities, in 2018, in safety, we've stated a total recordable injury rate of 0.35, confirming that we are in the lower range of the industry average. For the environment, we are strongly committed to reduce the carbon footprint of our activities. Upstream GHG intensity decreased by 6% versus 2016 -- 2017. In 2018, we improved our main KPIs from the upstream to the downstream sector, increasing our financial and technological efficiencies. And with an extensive integration of all our businesses. The main highlights for upstream are: the new record of production with 1,851,000 barrels per day, an increase of 2.5% excluding price effect. An exploration of more than [60 million] barrels of added resources at the unit exploration cost of $1.50 per barrel, which confirms our focus on exploration to guarantee organic growth, contributing to low breakeven cost. Moreover, also in 2018, we reached a very high level of all sources reserve replacement ratio of 124%, which was fostered by new FIDs taken in the period. And finally, we increased the value of each produced barrel faster than expected. In mid-downstream Gas & Power, performance was strong with an EBIT of €544 million, more than twice that of 2017. This growth has been led by gas portfolio improvement, LNG and power, and remarkable retained contribution of €201 million. Downstream performance was slowed down by the high cost of the feedstock,…

The first question is from Mr. Henry Tarr from Berenberg.

Could you potentially talk about the auctions on the exploration blocks, one in the UAE and the Middle East? When are you hoping to start drilling activities and perhaps, if you could talk about the potential fiscal terms agreed for the blocks and how happy you are with the arrangements there? And then secondly, following the investment into the refinery in the UAE, are you now happy with the balance of the portfolio? Or do you think there's potentially more rebalancing to do as you look across the group?

Okay, thank you. Luca, can you answer for the exploration in Middle East?

Yes, our plan is to start exploring in Abu Dhabi offshore next year. So we had a plan for start drilling in second quarter 2020, and we'll follow-up with a stream of exploration wells.

So I think that you asked also if we are happy with the commercial contracts that we signed. Here, we are happier the way we didn't sign it and it's clearly considering that it's not diluting our package of exploration initiatives, it's not diluting our -- in the future, our package of development, so it's good conditions and clearly we have to be good also in exploring and finding resources. For R&M, so I think that now we are really focused on this big initiative and big acquisition we made. You know that -- we had plan on development already defined so we -- by 2022, we are going to increase our capacity from 900 million -- 900,000 barrels to 1.1 million barrels per day. We are also -- improvement also in Italy because we restart in EST. So our refinery in the North of Italy, we start also Gela now. So I think that it's going to be a good period for refinery. If you ask if we are happy and now we think to -- we are in a good balance between upstream and downstream. I think that now, we improved our position. Clearly, we don't have any other [indiscernible] prone to losses. We need something that we are going to see in an opportunistic way, but considering that we are in the biggest refinery that has a lot of possible future development, I think that we are happy with what we have now.

The next question is from Mr. Rafal Gutaj of Bank of America Merrill Lynch.

I've got a few, please. First one, just coming back to the ADNOC downstream acquisition. So when that transaction closes in the third quarter this year, your leverage will likely go up by around 5% or so. Can you just illustrate what that might mean for the timing and level of additional shareholder returns over and above your current dividend strategy? Second question, just in upstream. You had a 100-million-barrel write-off. Could just give us a little bit of color around where that is and what are the assumptions underlining that reserve impairment? And then finally, jumping back to downstream. Just a bit of housekeeping on the Milazzo refinery in the first quarter. Can you give us how long that refinery was out due to weather issues in the first quarter?

About ADNOC investment in the refinery. I think the closing is expected by the third quarter. So first of all, it's not impacting in our capital allocation with respect to the -- our dividend policy or our return to investors. So they are not incomplete because also we do acquisition. Now our leverage will be well below the 20%. So from that point of view, there is no problem. Massimo, if you want to answer for the...

Yes, so the net write-down that we made in the asset amounts, substantially to €470 million, net of taxes. More or less half of this value is due to the write-down we are performing on Junin 5, our heavy oil asset in Venezuela because we have written down all the proved untapped resources -- reserve, sorry, due to the current situation in country. So we have written down also the value. So the issues relate to the difficulty to operate such asset in country right now. So you remember, we made the write-down of Cardón IV, so the Perla field in 2017 because of, as we said, uncertainties in country. So the difficulties to inject additional money in Venezuela. Today, we are performing this write-down because of the technical issue in country. So the current production is going ahead while the development of the undeveloped reserves is difficult and that's the reason why we're doing so. And the rest of the write-downs relate to other assets and may relate to technical issues and a slight reduction in the scenario we're projecting looking forward.

[Foreign Language]

About Milazzo, really the long period of bad weather could do some problem in our South refineries not only Milazzo but also in Taranto because the bad weather was very long. This was a rebalance that -- with the repositioning of our product coming from other depot and refinery. And in Milazzo -- especially in Milazzo for a couple of weeks, we had to slow down some plant but without any shutdown.

The next question is from Mr. Alessandro Pozzi of Mediobanca.

I have two. The first one is on ADNOC and the refining unit. It looks like it's going to have a meaningful contribution to your R&M division. Just wondering if you could potentially quantify for us the impact on either earnings or cash flow? The second question on the upstream. Gas realizations in the upstream have, again, been very strong. Just wondering if you can give us a bit more color there. I was also wondering maybe if there is a lag between the oil price and gas realizations in the upstream?

Massimo, you can answer it.

Okay. So as far as the return expected from ADNOC refineries, definitely we don't -- we can't be deterministic on this, but some numbers have been spent even by the operator and the other partners in the initiative in the range of 10% -- at 10% yield from this investment and -- broadly speaking, we can confirm definitely the cash flow expected from this investment would be a growing one. As we said, as Claudio said, we expect growth in our capacity -- in the refinery capacity up to 1.1 million. So the return would be in line with this growth, with an average that would be in the range of 10% to even slightly higher than 10%. And the second question? Unidentified Company Representative, [16]: Realization of gas.

The realization of gas. The realization of gas has been growing in 2018, taking into consideration the increase in the gas realization prices in Europe when we sell the Italian production and -- part of the Libyan production. So -- and the mix, the change of the mix in our portfolio in terms of gas is contributing to this among the new project, the gas project there in the production. I would like to remember Zohr and Jangkrik definitely are increasing significantly the overall realization, gas price in our portfolio.

So I believe the sensitivity of cash flow to the oil price has come down a little bit. I guess that's a function of the new projects coming online?

Yes, exactly, but you are right.

Our next question is from Mr. Alastair Syme of Citigroup.

Can I just ask what you think will be the sort of key final investment decisions you take in 2019 in the upstream? And my follow up was just really on reserves. Eni has shown itself to be very different to the rest of the industry in terms of reserve replacement in recent years. At the same time, some of your peers say reserve life and reserve replacement doesn't really matter that much anymore. I'll be interested in your perspective on how the strong reserve position gives you visibility on the future. What you think of that comment?

So clearly, our position on the reserves replacement ratio is quite -- I don't know what they think of the other, but it's really one of the main priorities because we -- our strategy is to grow organically. So our strategy is to grow organically through exploration and be fast in developing our field. So we reduced our inactive capital. We have exploration. So we start from our exploration that is around $1 per barrel unit cost. So that is the only way to be able to keep and to travel over [indiscernible]. So exploration, development, that is the key. And a key is to replace our reserves and our production now. If you don't replace our production by -- organically, you have to buy, and if you have to buy, you have to spend much more and that means that you reduce your cash flow, your profit and that is not our business to reduce our profit. Our business is to increase. So clearly, the reserve replacement ratio is a key point -- is a clearly key point of our strategy. For that reason, we are investing in technology. For that reason, we are also so selective in finding good exploration prospects, close to existing facilities in an area that we have already some operation or existing facilities also if not our facility, to be able to go fast. And the average now, the average time to market that is 2.7 years, that is 1/3 of the energy industry, show that our focus is at the maximum. So for the FID, the FID that we think, to put in production, is a number, then we would be more clear during our strategy presentation because if we talk about 2019 now, we don't have anything to say in 1 month. But we are going to deliver about -- between 7 and 9 new FIDs that -- with the aim really to replace -- more than replace our reserves.

So Claudio, can I ask where you think the commercial resource base of the company is, as distinct from SEC reserves? Were you...

Can you repeat? Because Francesco wants to talk -- was talking to me, so I didn't follow you. Sorry.

My question was where you think the size of the company's commercial resource base is, as distinct from SEC-proven reserves?

It's about €14 billion, I think, yes. Yes, that should be -- no, it is a little bit more. But okay, we can say around -- between €14 billion and €15 billion if we can put the 2 periods there. And clearly, just to conclude what I was saying before, the organic growth and the replacement of reserves is a matter of -- to be low-cost and that is one of the reasons why we can keep our CapEx light. That is the reason why also for the future, they only said that they were -- the only disclosure I can do about the future is that, really, we can keep our capital flat because we are -- all our assets, we are growing organically. We can phase out and phase in new projects and that is really one of the reasons why we have been able to reduce our debt and to increase our free cash flow.

And sorry, just to follow up a clarification. The €14 billion to €15 billion would be consistent with your scenario planning. So you're based on sort of $70 oil, something like that?

Yes, exactly.

The next question is from Mr. Jon Rigby of UBS.

Sorry to labor the point on Abu Dhabi, but can you just go through the -- how we should think this going forward and particularly in the context of the calculation of the indication you gave on profitability? Because I'm a little puzzled because you talked about accounting for this in the associate line item. So do you -- as we go forward, unpack the associate structure to look at a sort of fully consolidated Refining & Marketing business to calculate the breakeven or is that breakeven calculated on the basis of the dividend inflow that you're getting? Just to clarify, please. And then secondly, I take your point slightly about not wanting to reveal everything about March 15, but just to think about the context in which you will speak on March 15, you've talked about the $55 cash neutrality figure, $52 achieved in 2018. There's a lot of moving parts with the disposals, additions, et cetera. Now obviously, you've increased the perimeter of the business with the Abu Dhabi acquisition. So the way to think about it going into March, would it be to think about whatever the moving parts end up is something in that $50 to $55 range is kind of where we should expect sort of Eni's net performance to be?

Okay. Massimo, answer the first question and the second.

Hey, Jon, technically, you are right. So the presentation will be accounted based on the equity method. So you will see the results, the 10%, the 20% that we acquired and in the cash flow, you will see the dividend. So the number I mentioned before in the range of 10%, in terms of yield, reflected the dividend. That is still part of the negotiation we put in place, so how to structure the dividend policy of the company. But let me say that this investment is a bit more than just an equity investment because we negotiated with ADNOC for more than 1 year about the technical assessment of the refinery and the way forward about how to increase the capacity, how to increase flexibility and the efficiency of this refinery. So we, definitely, from a company point of view, it is what it is, but from a business point of view, we really believe that our contribution would be much, much higher and will be part of the decision taken in ADNOC refinery. And definitely, we will give you every quarter, significant information about the contribution of this investment to our full result. So bridging from this answer to the following one, relating to the cash neutrality, definitely based on this respect, we expect that the cash neutrality will take some advantage from this investment because definitely, we are talking about the significant rebalancing in our refinery capacity. We said 35% increase or more than this. So definitely the key of this refinery is much, much lower than the average that we have in Italy -- basically in Italy, considering the historical asset base that we have. But then this, we have started positive contribution. Definitely, we have moving parts as you said in our cash neutrality. $55 in 2018 does not include any disposal contribution, and we do not believe that even considering no contribution from disposal, definitely we do not believe that our cash neutrality would be higher than $60 looking forward. We believe that our cash neutrality will remain definitely below this number.

The next question is from Mr. Michele Della Vigna of Goldman Sachs.

Claudio, one question. When you took over as CEO in 2014, you had a strategic imperative to improve the business and geographical balance of Eni and since then, you've materially grown the LNG business, refining biofuels, you've created, as you highlight today, a major business in the Middle East. You've entered Indonesia and Mexico in scale. Is there any other part of your business that you think still needs to grow to provide a better balance and where you see attractive opportunities at the moment, I'm thinking particularly in areas like Asia or North America?

So we have to do -- I think that we did a lot and we did a lot very quickly and rapidly, also because we have -- we had to fight the downturn and also because we had a good opportunity. And as I said during the presentation, we'd be able to enter most of these new country thanks to the technology and the know-how that we've put in place. Middle East -- in Middle East, the Gulf is not -- clearly not finished. We just started. So I think that we have to develop, to continue to work and there are huge important opportunities to grow and rebalance further our portfolio. And that area is quite important, and it's important then from a contractual point of view, from a good asset point of view, from facility and maturity, we are growing in Asia. So the gas in Asia is another target. We have Indonesia, we have Australia that is growing and we have -- you have to remember that we have Myanmar still and the exploration in Vietnam. So there are areas that, in exploration especially, on the gas side, we grow and we have also -- we are drilling an important one in Pakistan. In North -- in the U.S., we are growing in Alaska and that is an area where we are, that's where we're increasing production and that is an additional target, a known target for us. And so it's not finished yet. Between that 3, we have to do much more to be able to be more resilient, more balanced. Clearly, all these effort is also based on our target to grow. But looking at our carbon footprint, so clearly, we are working. And from a technological point of view, also to be able to grow, but reducing our carbon footprint. And clearly, I think for the scope 1 to become carbon neutral. That is another important, important target. So there are many things that are helping also to be more efficient, more effective and also to have a better package to sell to the new country that we want to enter.

The next question is from Miss Irene Himona of Societe Generale.

I have three questions, please. Firstly, in July, you merged Eni Norge with Point Resources. Can you tell us the impact in 2018 on your cash flows and cash balances of that deal? And perhaps remind us of the benefits you expect from this merger going forwards. Secondly, could you talk a little bit about cost inflation pressures? I mean, I noticed from your disclosures the full year operating expense increased about 7%. Are you recruiting more people? Or is there wage inflation? It would be helpful if you can clarify. And then finally, your full year capital expenditure was €9.4 billion. Your net CapEx, €7.9 billion. If you just remind us of the bridge or the components between those 2 numbers.

Okay. Hi, Irene. So as far as your first question about the effect of Vår Energi in 2018, I would say, along the year -- or during the year, in terms of cash flow economic terms, the effect has been 0 because we deconsolidated Eni Norge and created, from an accounting point of view, Vår Energi starting from the 31st of December. So the only effect that we recorded are balance sheet effects. And the balance sheet effect is being the deconsolidation of €1.9 billion in terms of net capital invested. And looking forward, we expect, definitely, a positive contribution, but in line with what we announced, so a contribution to our cash neutrality decrease in the range of $2 per barrel. The integration activities are going ahead as expected or even better than expected even from an industrial point of view and new discoveries has been announced. The progress in [Bahr] that project will be the next FID, are going ahead in line with expectations. So far, technically, so good. The CapEx split. Francesco's saying that Page 15 in our press release, you can see all the -- so capital expenditure there including investment, €9.3 million, €9.4 million. Net CapEx amounted to €7.94 million, and excluding the following items. So the entry bonus paid in connection with the entry in the new concession in the Emirates, amounting to €869 million, and other non-strategic acquisition in mid-downstream businesses for approximately €100 million. So this is the reconciliation between the €9.3 million and €7.9 million. Okay, and [Sam], can answer about the inflection rate.

Okay. In terms of inflection and cost environment for the upstream, what we reckon through our market analysis is that offshore drilling rigs, we see some signals of recovery of the price, especially for the caps rigs around 5%. While for the quarter activity, the prices, the rate, the daily rate are still steady. For the rest of the supplies, like umbilical line pipeline and production system, we reckon substantially steady prices. And the same really also for turbo machinery. In this moment, there is still a substantial market oversupply. While services for drilling, we reckon a 3% cost increase. So all in all, there is no big -- I would say big changes in terms of cost inflation for the upstream costs. Q - Irene Himona And in terms of your group operating expenses moving up during the year, 7%. Is that linked to something specific? Is it wage inflation?

No, it is related to increased activity.

The next question is from Mr. Peter Low of Redburn.

The first is on Refining & Marketing. Your green -- so your green throughput rebounded in the quarter, which coincided with the stronger-than-expected result. Can you give any indication of the financial confirmation of those green refineries and perhaps how you see that developing moving forward? Second, was just another quick one on Venezuela. Obviously, the situation is pretty fluid at the moment. But can you give us an update on the operations there and the extent to which you may actually think you can recover any outstanding receivables?

Massimo?

If I understood well the question, is the contribution of the green business. Okay, in the last quarter, we have a good margin of green product and the Venice refinery increased the EBIT and across the year with a good contribution of Venice even if the capacity of the refinery is not so high. In the next weeks, we will start also with the Gela refinery. That more than double the capacity of green and the contribution will increase significantly.

Yes. Just if I can complete the answer about the green refinery. So they are positive. They are giving a positive contribution. Clearly, we are still -- that we're using -- we start using through our technology, second generation, also third generation. So something that is not palm oil. So palm oil is something that has cost because there is the logistics, so we have to imports. So with the upgrade the we are doing, looking for our green refinery, we're using and that is our final target in second-generation. So cooking oil or waste material, organic waste material, that is going to reduce all the logistic cost and clearly, there is no compete with food and it's going to increase drastically the already good performance of the green refinery.

Yes, on Venezuela, the average production during 2018 was 48. The majority of the equity is coming from Perla and then we have Coral and Junin. The gas demand is lower than the capacity of our plant. And we expect to have it lower also during 2019. However...

The same range?

The same range, yes. However, the availability of the plant is there. In case of additional requirements, we are ready to deliver more gas.

Okay. So in terms of outstanding, the outstanding at the end of the year was in the range of $700 million. So more or less $100 million more than what we recorded at the end of 2017. So during the year, we've been paid in the range of 35%, 40% of total revenues. That's definitely something more than expected at the end of 2018. We expect that the way we are recovering partially the revenues will continue in the future. And what is much more important that the way we are recovering in euros outside United States is something that is not affected by the -- even the new US sanctions.

The next question is from Biraj Borkhataria of RBC.

I had a few on Egypt. Could you just comment on where you are in the restart of the LNG plant? Because it looks like this oil continues to surprise on the upside. And then also, just related to that, can you walk us through the key deliverables in 2019 for the phase 2 of the project? And then finally, for Massimo, just a reminder, can you guide us through a cash tax rate for 2019?

I'm going to answer about the LNG, Antonio is going to answer about the progress of the project, and Massimo, the rest. On the LNG plant in Egypt, we have full participation in [indiscernible] gas joint venture, that we have ended [indiscernible] at the present buys the LNG. And you know that, of course, that there is an ongoing -- there was an ongoing and there is still an ongoing litigation with the Egyptian government. The situation in the past months changed, in particular for all the discoveries which were made. And we are now, and we have been in this past period, in a framework where it is in the interest of all parties to have the plant restarted as soon as possible. And the parties are discussing -- on that basis, they have been discussing, they're still discussing and once there is the interest of everybody, you would expect that an agreement is found, but of course, the commercial discussion is ongoing.

Okay, concerning the performance of our project at Zohr, we are producing, currently, as you know, the 2.1 billion scf per day as a gross production and our equity is 672 million scf. And the major achievement that we are working for '19 is train 5, 6 and 7 completion. So the first step of next grow is going to be 2.7 billion scf in July, 6 months ahead of our schedule. And then we're going to complete in September the lay down of the 30-inch subsea line to increase our additional production to 3.2 billion scf, meaning that 980 million scf of equity. So the gross production that we expect in 2019 is going to be 450 million barrels oil equivalent. And in end of 2019, we're going to reach 580 million, which is going to be in September. So we are quite okay on our schedule and ahead of 6 months for all the projects. In addition to that, we have completed, more or less, the line that's connecting, you remember El Gamil for Nooros production with Abu Madi and this is going to give us debottlenecking on pressure, which we expect to grow up again on production of gas, which will give us additional 200 million scf from the previous 1 billion. So these are the plan for the 2019 in Egypt. Moreover, we are concluding our extension of concession on Western Desert in Egypt. And we expect to launch a large campaign of drilling on the oil discovery in South West Meleiha. And this will allow also to launch additional production on the Western Desert. Conclusion of now our negotiation is going to be more or less in couple of months and then we'll kick off all the activity there.

Okay. And as far as 2019, we expect cap -- cash tax rate in the range of 30%. Operator Our next question is from Massimo Bonisoli of Equita.

Two quick questions left. One, on the very positive marketing result in R&M division. Fourth quarter is usually a low season period. Could you give us some more details on this result? And the second on Versalis. At the start of today, the scenario forecast was for an operating profit of about €300 million. Clearly, this scenario was much different. Are there any operating issues also? Or it's only scenario-related?

Okay. About the marketing, really, in the last quarter of 2018, we had an exceptional performance even if this winter quarter is not really the best for the marketing result. And this is due to the very good performance of the retailers, especially the national retailer in Italy. But also in the retailer in other European countries, Germany, Austria and France especially. And these -- in addition, the result has been supported also to the increase in the rest of the world sale, maintaining a good margin even if in the quarter the consumption are slightly decreasing.

And Massimo, for the chemical side, you there was a lot of good win in the first half of the year. So unfortunately, this didn't happen in the second half. We are still very exposed in terms of polyethylene, in terms of the cracker margins, which, in the second half of the year, particularly with the spiking of naphtha, returned to the level of being very uncompetitive in Europe compared to Middle East and U.S. particularly. So we didn't have really any issues on the operating side. In fact, the fact that we are less maintenance and good operational facilities helped us in mitigating some of the second half. But unfortunately, with the portfolio that we have today and continue to try and to diversify and develop, we are still in the situation where the scenario had a big effect in the second half.

Mr. Descalzi, that was the final question. I will turn the conference back to you, sir, for any additional comments.

Okay. Thank you very much, and good afternoon.

Ladies and gentlemen, thank you for joining. The conference is now over. And you may disconnect your telephones.