Eni S.p.A. (E) Q4 2019 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the ENI Strategy conference call Q&A session. Hosted by MR. Claudio Descalzi, CEO and top management.[Operator Instructions] I would now like to hand the conference over to Mr. Descalzi to begin. Please go ahead, sir.

Welcome, everybody, to our strategy presentation. And I hope that you had the possibility to see our video and read our press release. And now we are ready to answer your questions. Thank you.

[Operator Instructions] The first question is from Mr. Oswald Clint at Bernstein. Please go ahead sir.

Yes. So Claudio, obviously, a very radical, very detailed plan today, which, I guess, has a headline of combining economic sustainability and environmental sustainability. And obviously, it’s very ESG friendly. I guess from our side, at the moment, there is a lot of evidence that very ESG friendly corporate strategies actually do deliver better investment returns, at least from an equity perspective.So my question here is, could you perhaps give us the top three risks or concerns that you have as you lay out this plan today in terms of executing it successfully? And that comes on the back of your last five years of, let’s say, fixing ENI and some of the challenges you’ve had to overcome just through the last five years? That’s the first question.And perhaps my second question is really around the the indicated organizational changes and especially things like phasing away from hydrocarbon-based refinery footprint in Europe, plus also some of the big impairments you had in the fourth quarter. So I’m really thinking about, can you talk about or give us some indication of the magnitude of restructuring charges that investors may have to think about as you roll out this change portfolio?

Thank you. So I’d like to say, first of all, that it’s an evolution or transformation of our business called new ENI. It’s something that started six years ago at the end of 2014. So it’s not something that’s coming overnight. And we work a lot on the – from a technological point of view. So we have our technology that can – maybe a Tier 1 of the risk. But this plan has been built. And also from an engineering point of view, on the existing technology or on technology that we have developed.One evidence, one proof, as we said during our videos, the two biorefinery, the biorefinery so we transformed, we restructured two existing refineries into biorefineries. And then we have the circular economy. The biorefinery – just like if they are running, they have a very good generator return, because we – we talk about 15%. So the technological risk, that can be seen as a possible risk. And this one is not – we have just – possible upside with new technology that we are going to develop.Another no risk, I can say, is that flexibility. Because we have a – our assets not just in term of technologies and competencies are very flexible, starting from the upstream. So the 3P reserves risk that we showed are very flexible with a very low average size, $20 per barrel. And so we have the flexibility to move in this area and move our CapEx in relation to the market. So that is an additional point.Clearly, we aim to increase now our number of customers, because the final aim is to reach our customers with products that are – with more carbon footprint, with a low-carbon, 0-carbon footprint. So the increasing of customers is a point that we already did. We start from a very good point. We have almost 9 million customers. And in a couple of years, in three years, we want to reach 11 million. So we can grow gradually in the next 30 years to add more than 20 million customers. That is a very important point for the scope to reach everybody with a new 0-carbon product.One point that we have to work on is the growth of renewables. The growth from renewables that we started as the brownfield growth when we did some good steps in the past. Now it’s going to became in a different way, and is really linked to our retail – gas and power retail. So it’s really the integration between the retail and the retail and development of the new product. That it’s not just renewables but also biomethane, for example, that is not a product that our [indiscernible] is selling, is another important point.So with the regulatory framework. So the regulations, we have regulation in place. That clearly, we have to tailor-made, adapt it to each single country. In Italy, we had some good results in the transformation of our refineries. Now we have to work on the TCS, because we have a big capacity, and TCS that we have in Italy is one of the main – one of – clearly, the most important steps to be able to have a blue electricity, a blue hydrogen, because you can capture out the CO2 and create products that are carbon free. But we have the reservoir, we are the depleted field and we have the capacity.So we have to work. And as we said, we are working – 25, that is our day to be set up with the regulation for the carbon capture and sequestration. And the average from a capital point of view, because in all our simulations, the capital are quite in line with the investment that remain in the last six year. We don’t see any peak of capital to develop this strategy. From the rerefinery point of view, from the circular economy, from a renewable point of view, so I think that is not a big risk. And for that, we have all the tools, all the technologies, our people very motivated because they participated in the last six years at this to develop this strategy successfully. So the organization, we said that we, clearly, all these transformation days on is big integration of all our businesses, and is going to cover all the businesses.So we have to tailor-made a new innovation that can improve also in the best practices and in the communications and all the standards, the – our business, our existing business, that are going to be transformed. So in the – before the end of the year, in the next month, we’re going to go to our Board, present a new organization and then we go public and we present to our investors and to our analysts, the new organization there. So it’s something that we are going to deploy during 2020.

Also Massimo speaking, as far as the impairment, the impairment we made mainly related to technical reasons, some of them to some – change the fiscal regime, royalties in Nigeria and in Italy. And overall, the related upstream and refinery. So nothing to do with the restructuring of something like this, but technical – mainly technical reason.

Excellent, thank you.

The next question is from Alessandro Pozzi of Mediobanca. Please go ahead sir.

Thank you, very much. I have two questions. The first one is you have some pretty significant reduction…

Can you talk – sorry, can you talk aloud because it’s not easy to hear you. Can you talk aloud, please?

Yes. Okay. so you have some significant target reductions in CO2 emissions, especially in intensity. And the intensity, I think, is going to go down quite a lot after 2035. I was wondering if you can maybe give us some color on the initiatives and the step you need to take to achieve that reduction in emission intensity? That’s a the first question.

So I’ll start, say with a few words about the intensity, then maybe Massimo can complete so some of our the intensity is in relation with the growth of our renewable and all of our products, so it – so that our target in renewables that if we – is achievable is to reach more than 55 gigawatts of capacity. And that is one of the main reasons why we are able to reduce at 55% renewables. The plan is flexible, clearly.We have targets for each year, and the investment and also the geography where we are going to develop this renewables, that will be for the 70% in OECD countries and for the 30% non-OECD countries. But the – so on renewables, different kind of renewables, one of the reason of this good target for the intensity – reduction of carbon intensity.

So Alessandro, the main drivers for the intensity reduction certainly would be the growth in the renewable capacity, the switch from fossil products to products without any fossil content, such as the biomethane and the hydrogen and the, what we call, the other blue energies that could be free of CO2, thanks to CCS initiative. You have seen that in our plan, we are projecting at least 10 million ton per year of capacity of injection that will turn our gas production that we said will be the most important element in our hydrocarbon production by 2050, much less CO2 productive on this respect.On top of this, the first three initiatives will complement such a package. Overall, in terms of carbon, we are projecting something in the range of 14 million tons per year, including the 10 million ton I just mentioned from the CCS.

Okay. And my second question is on production. I believe you mentioned that it could plateau in 2025, followed by a flexible potential decline, especially the oil part of your production. I was wondering how we should think about total production from ENI beyond 2025? And if there’s any decline – sort of decline you may have?

And so we said that we reached our plateau. So that is peak of plateau then we remain stable and then decreasing. So that is clearly related to the market conditions, market opportunities. Clearly, we are going to reduce our oil content and we are going to keep increasing our gas production. So the final target will be to reduce. So the value around the 2025 will be almost the same, then we’re going to reduce, and the oil production will be reduced.In energy, we have different figures clearly, because we run all the modeling with all the sensitivities. And because of the big flexibility we have, we don’t like to give now exact figures. We have just to think about the flexibility we have, the tools we have. And also the – when we reach this plateau, we have our CapEx that – we have free CapEx that can – we can invest in the growth on the other business.So creating new returns on the growing buyer in green business. So that is the model that we detail with all the sensitivities. But at the moment, that is what we can say.

Alright thank you, very much.

Next question is from Jason Gammel of Jefferies. Please go ahead sir.

Yes. I just wanted to come back to the renewables business growing in the OECD countries. I would expect that, that’s going to be relatively competitive to enter those markets. And so I was hoping that you could elaborate a little bit further on some of the very specific skill sets and advantages that you would bring to be successful in these competitive markets?And then my second question is around the hydrogen value chain. I was hoping you could talk a little bit about what price of carbon might be necessary to make blue hydrogen and CCS, in general, competitive today?

So our renewables, Luca Cosentino that is in charge of the division for renewables, can give you some answer about your question.

Yes, thank you for that question. So we expect the, as you said, that the competition in the market, in the European market and in general OECD countries, will be very strong. However, we start from a very strong position because, as you know, we have like more than 10 million clients already in Italy and in France, and we expect to expand this customer base in the next year. So we have a very deep knowledge of the European, and in general, they grow the markets, power markets, and we think that this will be a very strong advantage for our expansion.We have better competence now. We have a number of partnerships already in place for this. So we believe that we have all the elements in order to be successful for the growth in OECD markets in the next years.

Talking about hydrogen. So as long as we wait for, I would say, a technological evolution in producing green hydrogen, our expectation next year is definitely related to the blue hydrogen production linked to the CCS project. So – and the first CCS project we have in mind is the one that we described in our presentation, the Arena project. I mean the project represents a significant opportunity for us because of a lot of advantages, including the huge storage capacity in reservoir that are very well-known because we produce from these reservoirs for many years in the conventional area. And close to the plant onshore that produce CO2, including the power plants.So all combined, the scale, the possibility to reuse existing facilities, allow us to project a very competitive cost, even these days in producing a blue hydrogen. Definitely, we will need some funds in projecting it to get the authorization, because an authorization is still in place at European level, at general level. But being the first project that, I would say, for planning purposes, we expect that the authorization process would take some time. So that’s reason why we believe that the start-up of this project will take four, five years before the execution.If executed, and considering the capacity of reinjection of at least 5 million tons per year, the corresponding amount of hydrogen that could be produced on a competitive way at that time will be in the range of 1 million ton per year.

Very helpful thank you.

The next question comes from Alastair Syme of Citi. Please go ahead sir.

Can I ask – on Slide 36, you show the future upstream returns of the portfolio. And you say – your scenario you see 25% post-tax rate of return. And then clearly, that reflects a business that’s got a steep tradition in building this confidence in an upstream. The returns that you think you can get by not investing in this, do you think that you can constantly compare with this rate of return?

Okay. So technically, the numbers that we are able to disclose on the existing upstream portfolio are the ones that we mentioned. On top of this, I would like to remind even the production profile related to the existing 3P reserves that has been presented in the longer-term strategy. And you have seen that this portfolio is very, very resilient and flexible. Resilient because the breakeven is very low, so we’ll be in a position to produce all of these reserves at a maximum Brent price of $35, while we’ll be in the position to produce quite all the NPV by 2030.Why I’m stressing the flexibility on the timing process because technically, as we are a capital intensity company, definitely, we have to look for, and see the signal from the energy market. By definition, it’s expected to be an evolving market in the medium and long term. So that’s the reason why we are preparing ourselves to have a differentiated in our portfolio, retaining our position in the strong upstream businesses, but preparing, too, in the position to supply our customers with different products.On this respect, definitely, the new businesses will have different characteristics in terms of our capital-intensive data. And definitely, the portfolio we are reshaping today is definitely less capital-intensive versus upstream. And because of the pathology of these businesses itself and the geography, too, I assume that even the risks associated with the new businesses would be different. So all these should be included into such a comparison between what we see today in the existing upstream portfolio and what would be the return for additional investment.On top of this – so this refers to the evaluation of the future businesses, business by business. So for planning purposes, we are using what you can see on the market in terms of expectation, in terms of return from renewables, for we are experiencing a 15% return now on biorefineries. So I’m talking about the internal rate of return, the are double digit, too, not only single digit. But what is most important is that the evolution of the portfolio as is designed in our strategy will have an additional value that is the integration.So the portfolio we are at design would be much more integrated than the existing one. Because every new business or at the businesses today already present, that will take an additional growing weight in our portfolio, will be developed in a very strict relationship with the others. So the renewables, together with the clients as an example, Refinery Plus, chemical is another one, the Sprint linked between the new gas development together with TCS, together with power, to be served to our clients CO2 free are another one.So what we really expect from this kind of evolution in our portfolio will be an additional value from this integration.

Just to complete what Massimo said that he’s [indiscernible], he touched all the main points. You have to see to this new energy, not looking at the single internal rate of return of the different business, it’s a completely different situation. And yes, so you look at the powerful at the strength of a company that can really live together and stay together and creating new, strong alliance and free much more power from this integration. And that means that we’re are reducing cost capital investment. We are reducing the risk, but we are not reducing the internal capital – own capital, we are increasing the internal capital.So that is something that with the time we can go deeper. But the strength of this plan that is an industrial plan, it takes advantage of all the different strengths and opportunity of each single business that not only put together, that we are on the value chain. So if you compare the 23, not comparable. The new business, at the end of the day, considering also the carbon tax that, in the future, we are going to – we are really very much, much more resilient, less costly and maybe looking forward for a new way.

So perhaps if I can stick up on that because – the point about carbon tax, if you’re taking a view on the future because also on that Slide 36, you’ve got the impact, the returns impact from the IEA sustainable development scenario. So to rate of return from mid-20s to mid-teens, which is where you’re saying the renewables portfolio to take [indiscernible], your intention in trying, that is development scenario must be pretty slight tenfold, is that the implication?

Yes. So the impact we are showing in our sensitivities refer to the existing project. And the existing projects definitely are – really very well, I would say, resilient and protected, also because of thewe duration of the production profile. But definitely, the more we go distance towards 2050 and the higher will be the risk of a deeper and – has the higher impact from CO2 certificate that could cost definitely much, much, much more.So this is the risk someway, we cannot ignore, and we have to deal with. But just to conclude, definitely, what we are doing is that we are talking about after the planning exercise that it’s quite a difficult one, definitely. But that is not because it’s difficult that we are not going through such an exercise. And the results that we can see up to now performing this calculation based on the element that we described give us a lot of comfort.Because if you remember the principles that we put at the very beginning of our presentation that include the solidity in our balance sheet, together with the progressive remuneration policy, what I can say that we are testing such principles, even using a stressed scenarios, such as a scenario of $50 Brent and a $5 million BTU, the gas cost and from now to 2050. And in this respect, I can say that the principle – so the exercise give us a reasonable expectation that the principles can be met.

The next question is from Mr. Massimo Bonisoli of Equita. Please go ahead sir.

If I may comment, it’s a very impressive plan. I have two questions. One of the key success factor of ENI over the past few years was the ability to explore and discover hydrocarbons. How do you expect to continue to create value through this unique asset at ENI? And the second question is considering the very recent gas price drop, are you considering the eventual delay of the gas project in Mozambique? And if you can remember the economics of gas in terms of breakeven of the project.

So situation is there and will be there, is our strength. Exploration is not just our strength, also the capability to fast time to market and fast time to value, and that is linked to our development and engineering and technology. So exploration will be more focused on – we are going to have more optionality. We can be more focused on areas where we are even more sure to not just get gas but also able to connect very quickly and give value to these gas. Because one of the aim is to, in any case, work with our equity, shrinking the third-party gas.So the equation will be there, it’s very powerful tool, a powerful tool to offer new countries. And for sure, we are not going to make a too strong capital for any weaker, that is clearly a very important point for all our people first and for our investors.The Mozambique. Mozambique, we – our projects is on it’s way we already sold the gas, so it’s robust and is – will be really right by beyond 2022. For the rest of the big place in Nigeria, action is working. I think that’s – yes, they are working for the FID by the end, I think, of this year. Clearly, what you said about the gas price is a very important point. So what we want from this project is a strong cost reduction. Because with this, we need the cost of this project to be reduced to be able to have a price that can read the market making money. So I think that the only point now is to be able to reduce costs on the Mamba project, that is in the end we did mention that in end of the operator and that we are helping them to go have good new strategy.

The next question is from Biraj Borkhataria of RBC. Please go ahead sir.

Two plesae. The first one on the renewables target, 15 gigawatt ambition by 2030 still looks quite substantial. Could you just confirm whether that’s a gross or net target? And also, can you comment on how you’re seeing the opportunity set today and the level of return for the various elements of that, like solar and wind?And then the second question, just going back to Alastair’s comment on Slide 36. The majority of your CapEx is still going to be upstream, going forward. And with those very low breakeven, should that at some point should result in a higher return on capital. So could you just outline what return on capital could you expect to generate by the end of the plan period in 2023, and just confirm that’s higher than the cost of capital. Thank you.

Can you then, Massimo, for the economic plan?

Yes. So the 55 gigawatts is certainly a very challenging objective for us. But there are at least four main reasons why we strongly believe that this objective can be met. First of all, we will have a very significant geographical expansion with respect to the current distribution of our project because we will expand in Europe, and especially in France in Greece in Spain, in the UK, in the Balkan Region. We will expand a lot of our activities in the U.S., in Australia. And also, we have a number of projects in non-OECD countries.So wide spread distribution of our project. That’s the first point. Second point, we will concentrate on large-scale projects in order to get materiality for our business. And third point, we will also leverage on selected M&A opportunities of pipelines, for example, or assets or developers, for example, in order to accelerate this growth.And then last but not least, we will leverage on a number of partnerships like the one that we recently signed in the U.S. with Falck Renewables, but also in Italy with Cassa Depositi e Prestiti, and with other technological and providers or developers. So we believe that this comprehensive set of tools will allow us to grow very significantly in the next years along the plan.

Your complex question about returns, so I can give you some guidelines. So you mentioned at the end of the plan. I understand the end of the plan at 2023, the overall return I can quantify in terms of watch and watch expected return would be in the range of 11%, definitely is a mix between the different result from different businesses. The highest definitely would be at the retail without capital invested or very low capital invested, while the others will be growing, such as the renewable, will have a quite low return. In terms of projects, so in the next four years, definitely, the most important project are the upstream ones.So the numbers we already released about projects are the more relevant to figure out, which is the expected return from investments. On the longer term, in 2050, as we presented, the shape in our portfolio will be slightly different, including the combination between highly capital-intensive businesses and less capital-intensive businesses. So in terms of return, let’s say, large does make a great sense.What I can tell you in terms of indication that comes from our planning assumption today that if we measure the cash flow from operation now versus the net capital invested. And we compare what we have in our hand today and what we envisage in 2050, for example, or in 2035, in terms of need data all along the evolution, I do not see significant differences.I mean, by definition, the cash flow from operation expected from businesses, less capital intensity will be lower, but will be lowered also the capital invested. So the ratio would remain more or less unchanged, giving us the possibility to confirm what I just said in term of principle. So our solidity of our balance sheet, together with the due respect in our progressive dividend policy.

That’s very helpful. Can I just confirm that the 11% return on capital is based on your assumptions in the slide pack, correct?

Yes.

Okay, perfect. Thank you.

Yes.

The next question is from Mr. Thomas Adolff of Credit Suisse. Please go ahead sir.

I’d like to discuss corporate returns again, and thanks for clarifying the 11% target for 2023. And then just to clarify, the longer-term number that you talked about, did you say that 11% should stay more or less around that level for the 2050 plan. And I wondered, as the business also shifts quite dramatically away from the more capital-intensive and perhaps also the more risky business of exploration and production, how should one think about the shift in the cost of capital of the business as well?Secondly, perhaps a little more specific question on the near-term and medium-term production, I can see that in 2020, you only expect a small increase in production. And despite the fact that if a client’s excellent Norwegian assets, which should see we should add 100, 0000 barrels per day net to ENI, that also, when I look out to 2025, you now have a target of 2.3. This time last year, we presented 2.4. And again, this year, you have the Norwegian asset deal. Last year, we didn’t. So if you can perhaps talk about the changes to this plan versus the plan you had a year ago? Thank you.

Just to clarify, the 11% I gave is the rate we expect in 2023 for the whole group. And talking about future return. I said what I said. So I made reference to the expected cash flow from operations versus the capital employed. As I said, that some new businesses, definitely, retail and gas and power businesses growing from 10 million to 20 million of clients in 2050 together with, I would say, a bigger marketing what we call today, marketing law is that tomorrow will be marketing of different sources of fuel together with services renewables, so that definitely are much more capital-intensive, like the other business such as hydrogen production that are less capital intensitive. So the mix would be overall less capital intensive.And you correctly mentioned the risk, that definitely should be lower. So the cost of capital should be lower for a lot of reasons because of the geographical spread, that would be much higher than today. Because of the differentiation in our portfolio. It would be lower because the new businesses, we are entering, or we are expanding are less risky than the upstream for that reason, for industrial reason, for geographical reasons and whatever. So definitely, we expect an overall advantage also in terms of cost of capital to supply capital for this investment plan.

There are still questions on production.

Okay. Regarding 2020 production, we have to say that we have a lower equity production in Libya, because of a contractual trigger and the contract of Area B, where we have a reduction in our cost recovery from 40% to 30%. And this reduction basically almost offset completely the increase of production that is due to the ExxonMobil, non-operated asset acquisition in Norway.

The next question is from Mr. Bertrand Hodee of Kepler Cheuvreux. Please go ahead sir.

Yes. I saw in your disclosures that your greenhouse gas emission intensity in terms of ton of CO2 per thousand boe. On an operating basis was down sharply, minus 9% 2019 versus 2018. Would you be able to disclose some number on an equity basis as opposed to an incorporated basis? And then I have also a follow-up question on your net new greenhouse gas emission target for upstream scope one and two.Can you disclose what would you use in terms of reduction, meaning which way do you believe you would be able to get to a net [indiscernible] also, which percentage will come from CCS, which percentage will come from reducing or whatever kind of indication you could get to us? Or what would be, I would say, carbon effect besides this net [indiscernible] target by 2030 in upstream? Thank you.

Sorry, I’m checking this – we have available the 9% in equity terms, probably not. So I will let you know, right? So for the upstream, okay. So Alessandro is going to answer for the upstream.

So for the upstream, the reduction in terms of CO2 emission intensity and total amount as well, will come from certainly efficiency, first of all, operations. So reduced full consumption for our operation, lowering to the lowest possible the flaring and then emissions. And then certainly, we will have a component of CCS for sequestration of CO2, and then in forestry as well.

Just to give you a few figures about this. A very important element in this achievement, clearly, is the emission. And this year, we reached 6-year in advance, 8% of the emission that is one of the most important element.We confirm our reduction of the gas lane by 2025. The two countries where we are still flaring gas, also if you reduce this are Nigeria and Libya. And clearly, we wanted to do better. That is the two countries at the moment that are not easy – especially the access for Libya, it’s not easy. But we’ve seen that with the work what we are doing on offshore, we were able to reach these two targets. And then as Alesandro said the CCS is another important component and the offset with the forestry that 2030 account for 20 million tons per year will be the rest step to close our carbon-free production.

Okay, thank you.

The next question is from Mr. Roberto Ranieri of Banca IMI. Please go ahead sir

Yes. I have a question on green chemicals and green chemistry, and one question on the E&P. My first question is on green chemistry and related – and it’s also referring on the last news and press release on the acquisition of 40% of the steam project. I believe it’s going to the right direction of recycling raw materials and producing final products. In that way, you basically are going to enhancing your recycling and your green strategy. And in addition to that, you also capture the margins to the retail market – in the retail market of these products.My question relating to this is if you are developing other further projects or if you are going to develop also a complete other M&A actions in this field. This is my first question. My second question is on E&P and relating to the gas verus volume mix in the future, reducing oil and enhancing the gas production.Could you – do you think that this change of mixture and kind of portfolio could lead to some price risk, average price risk for hydrocarbon production given the price – the current gas price reduction in the past few months? And if I may, the very last question is still on green chemistry. Referring to the C02 capture, is there any technology available on the market now you are starting for the chemical capture of CO2? And from this capture to produce also chemical specialties. Thank you very much.

Daniele Ferrari CEO of Versalis. And then I will try to answer to the other question.

Thank you, Claudio, and thank you, Roberto, for the question. Basically, the – our entry into green projects is marking one of the three pillars of the new developments for Versalis. You have heard this morning about continue to create efficiency in our existing units. You’ve heard about the moving to renewables, which is becoming more and more prominent, and clearly, into bioproducts and bioplastics in future. And then the third one is the specialization of our polymers. Now Green Projects is an international company specialized in molding and components. So basically, the move of the Versalis into a formulated business. Why we are doing that?Because the margin in that business is clearly on the high end of the double-digit, completely different from the one we have today with our intermediates. We try to deploy as much as we can through these new channels. They go into application, which goes from cables, into piping, into fashionable items for furniture. When I think about the sustainability asset you mentioned, I think about also piping for the movement of hydrogen in future in a sustained way, in terms of polyethylene reinforced fibers. I think about encapsulant for the solar panels. So there is a lot of new elements adding to the portfolio of Versalis.They are an international company. They have about five or six sites outside Italy, in very interesting countries where we are not in, like Vietnam, India, China, Mexixo, so interesting growing market. And clearly, they have the renewable possibility, so they can blend and they can manufacture products based on renewable materials and on recycled materials that we are very much into, both mechanical and chemical.And to answer your second question, whether we can – we are starting – in addition to the many technologies that, as a group, we are looking at in terms of carbon capturing, there are niche technologies where you can make ethylene or propylene carbonate with CO2. These are clearly different in terms of sizing to the rest of the projects we are talking here. But they are specialty products that goes into cosmetics or solvent application. So I think we do have a research in this field, and we will update as much as always.

Thank you, Daniele. Also for the demonstration of integration and this change of technology between the different businesses. Talking about the gas. Clearly, if you look at the gas now, the gas is depressed, something that we forecast and will be depressed for next two, three years and before. Then we saw that – we know that after the validation of all the Australia on gas and also some gas that, new gas we have renewed from the U.S., the gas market will go. We have a positive view for the future.So that would be also in all the different scenario, the only hydrocarbon that will grow to 2020, to 2050. So the gas is a good component of the carbon and also of our production. You have to remember that our cost, internal development and the operating costs are very low. The market – gas market is growing. So that is also one of the reason, not just the carbonization that is essential, that gas will be much more resilient than in the future.You have to remember that in an ICD country, the oil production is very flat and all the growth is coming from outside while the gas is growing everywhere. So you don’t have to look at today, but you have to look at, at the future, and that is what we did in our presentation and in our study.

Thank you very much.

The next question is from Lydia Rainforth of Barclays. Please go ahead mam.

Just one question, if I could. If I come back to the 55 gigawatt target for 2050, I’m just wondering if you could walk us through a little bit more how you got that, and why you think that is the right number, both just in terms of scale or whether it was designed from a top down, if this is what you wanted in terms of CO2 emissions reduction. Thank you.

Yes. As I said before, I mean we have a comprehensive plan behind this 55 megawatt – gigawatts. It’s not just an objective or an ambition that we set, but this is – there is an underlying plan for that which is based on geographies, it’s based on technologies, based on load factors, it’s based on a number of points. So from a – the materiality of this plan, we are fairly sure about it. And how to get that, as I explained before, it’s a mixture of geographical expansion and partnerships, M&A and other elements like this. And in terms of the other point, I’ll leave Maximo to answer.

Definitely, Luca, explain why we are confident that we can get to the 55% or even more because we said more than 55 gigawatt. But at the very beginning, we said that one of the most important characteristic of this plan is flexibility. So definitely, we probably – we can get even more than 55 in order to complement such an exercise, but flexibility means that we have a lot of tools to get to the final result in term of balance sheet solidity, progressive remuneration, getting to the CO2 reduction result that we are announcing today.So these tools, the balance between the different businesses inside the portfolio, definitely will shift. Maybe that could change going ahead because this would be the good of this flexibility. So all this lever we have to modify our portfolio, getting the best opportunities ahead of us, some of them – we see now some of them maybe will appear in the future. So this is the good. So this is the way – the reason why we believe that we can – we feel ourselves comfortable about the final result even if the way we can get there can – could change from now to the next 20 years.

Thanks very much.

The next question is from Martijn Rats of Morgan Stanley. Please go ahead, sir.

I wanted to ask you two questions. I know it’s a bit more than one, but I hope that will be all right. The first I wanted to ask relates to Slide 19 where you talk about the reduction in carbon emissions. So on the right-hand side, in terms of reduction – plant reduction intensity of 55% and on the left-hand side then it shows a reduction in the absolute emissions of 80%. And I guess, one way to get to an absolute reduction of 80% is through a reduction in intensity of 55% and then also a reduction in total energy sold also again of another 55%. And I was wondering if this is a correct interpretation of this chart or whether there’s something funny with the math here. Because in that scenario, the chart seems to suggest that by 2050, ENI will sell 55% less energy than it does today, and that point a large decline.The second thing I wanted to ask also relates to – well, it relates to the same chart. I was wondering why you decided to include an absolute emissions target. I do know that a lot of people are asking for it, but from our perspective, it also prevents you from doing a lot of – from doing M&A. And in a world where oil demand at some point peaks, I would still say there’s nothing wrong with M&A-driven growth. But when you have an absolute emissions target, that becomes very, very difficult. So I was wondering how you see that trade off?And then finally, I wanted to ask you about your commodity price assumptions. Basically, they seem very high to me. Now forecasting these things is by no means easy. So I don’t want to make too much of it. But the reason why I asked this is that most of the majors present sort of deflationary sort of breakeven. I think breakevens tend to come down over time driven by technology, cost savings, all these things, and that’s also what you’re presenting today, but then at the same time, show rising commodity prices. And it seems that there is a sort of a degree of inconsistency there. How can you model rising oil price assumptions whilst modeling falling breakevens at the same time? I was hoping that you could give your view on that. Thank you.

So Martijn, Massimo speaking. So you’re asking which are the lever that will allow us to reduce our absolute emission by 88%. Certainly, the action we are envisaging in terms of reducing oil or in, absolute term, reducing the amount of hydrocarbon we handle based on our methodology to measure the emission, that I don’t know if you had the chance to go through the methodology that definitely could be worth. In the afternoon, I would like to remember all of you that there will be a workshop on this respect. Our methodology includes all the hydrocarbon we deal with, including the hydrocarbon to supply our refineries which we’ve acquired from third parties, the gas we acquired from third party to supply our customer or to be sold on the hub. So definitely, this volume will be reduced over time, with the replacement of additional sources. Claudio, do you want to…

To highlight that we are going to reduce, shrink the third-party gas that we are buying, and we’re going to increase our equity production. So don’t – I don’t want any misunderstanding that, that is where it’s important content – the whole component that from the absolute point of view, so that is when we put the absolute is reduce it drastically our Scope 3. Because in our methodology, we put our chart, also the third-party guys, that we buy from a third part and we sell to a third party. That a big component is the transformation of all our refinery sector in Italy. That is the reason why we are able to reduce so drastically the absolute. And why that is a positive point in our strategy because this kind of asset – so this kind of configuration portfolio allow us to do that. We wanted also to explicitate the absolute value of reduction.

It’s Massimo. In terms of scenario we are assuming – I don’t know if our scenario will be too high or too low, we will see. But what is the most important, I believe, that in all respects, figuring out which is the return in our upstream project or even if we have to measure the expectation in the longer term, we are providing a lot of sensitivity. So anyway, you would be in the position to measure how resilient or flexible are our existing assets or if the assumption we are using in measuring our expectation in the longer term, I mentioned a $50 barrel flat scenario together with a $5 million BTU gas price. So this is the answer, Martijn, no one knows. But we are giving to you a lot of information in order to assess exactly how resilient is and will be our portfolio.

Okay. And anything on sort of doing M&A whilst having an absolute target for emissions?

No M&A. No M&A. There is no M&A for reaching these targets.

Okay. Thank you.

[Operator Instructions] There are no further questions.

Thank you for your questions. If there are no further questions, we can end the call now.

I’m sorry, sir. We do have a few questions registered.

Okay. We’ll take them.

Okay. The next question is from Mr. Lucas Herrmann of Exane. Please go ahead.

Gentlemen, thanks. And thanks very much for the opportunity to ask question. Two, if I might. The first, can I just ask what comes first, customers and demand or supply? And I was just thinking about the model you’re building and the importance of end demand to calling off…

Excuse me. Excuse me. Can you talk – please repeat your question and try to talk louder because we are not able to capture your questions. Excuse me.

Claudio, the first question is what comes first, demand or supply as regards to renewables business and the build-out. In other words, you have customer or facility? And I ask not at least because the weight of your customers at the present time is still – is very Italian-focused and yet the expansion of the renewables business sounds as though it’s more broadly focused. And the second question I wanted to ask was about the financial frame and the importance of buyback or returning capital to shareholders as you move towards the middle of this decade. Clearly, as you move away from targeting growth of 3% or 4% per annum in the hydrocarbon business and the amount of capital that’s going to go into that business, it’s going to fall away and should fall away quite materially.I mean, we already see that in the numbers that you’ve given us out through 2023. At the same time, you’ve been growing your dividend after allowing to buyback at somewhere around 3% in absolute terms per annum. How does all of this fit financially with the model that you’re looking to build 2025 onwards? In short, the question, Claudio, how do you start to allocate capital to each shareholder in the business as we move to the middle of the decade?

Okay. Thank you. So Lucas, first question. And Alberto Chiarini is in charge of Eni gas e luce will answer.

Thank you for your question. As you correctly say now, our presence in AGL is mainly in Italy. We have a strong presence, however, in France, and in grades where we are growing. I think the first concept is that we are looking for synergies. We believe – we strongly believe that in the future, going forward towards to 2050, that it will be very important to provide green energy biogas to our customers. Because of that, I would say that the growth of renewables is driven also by customers. We are well coordinated. I always talk with Luca in order to see which are the countries where we can grow both in renewables and in customers. We have a strong know-how in not only gas and power but also all the high-value services like demand response, like electric vehicles recharge. And we believe that in the future, to be present in this ecosystem with renewables would be very important. So we will grow together in those markets that we believe are promising.

And I just want – sorry, Alberto. Just one point about your question about demand and supply. I think in a few years, if you are not able to deliver green products you are going to lose your customer. So that is an essential part of the integration, all we’re able to deliver – to supply in all different countries. And as we told you, 70% would be in OECD countries. So we are able to deliver this kind of different kind of product without CO2 to expand the scope 3, you are not able not just to grow your customer, you’re going to lose very quickly. So that is one of the major reason.

In terms of capital allocation, I believe that the best way to answer – qualifying our model is to mention again flexibility. Because we just fixed some pillars in our strategy forward. So we are saying production is going to plateau from 2025, and then we envisage a decline, a flexible decline mainly in oil. How deep would be the decline, the answer because of the flexibilities, we don’t know. So it will depend on the existing market demand, a lot of other – the competition from different businesses in which we would like to enlarge by definition our presence because we believe that a much more balanced portfolio exposed to even different energy sources could be a very good move on this respect, seeing such an evolution in the market looking forward.So the decline will take place because we announced also the reduction in our footprint as a fixed target. So definitely, we are stating such a target to respect it as we can. So in terms of allocation, how fast would be the reallocation from upstream to the other businesses, it will depend on flexibility. Based on what we see today and the quantities in different businesses we announced today, it could be reasonable to project in 2035 a 50-50 capital allocation, so 50% upstream together with CCS and 50% the other businesses.

The question part is, if I think that you’ve been growing at 3%, 4% per annum or adding broadly 80,000 barrels per annum, and I think that the cost of maturing those barrels, assuming a reserve life of something like 10 years, it says that $3 billion to $4 billion worth of capital should be falling out of your upstream spend. That is a huge amount of money as regards reinvestments into a project finance renewable model. But where does it go?

No, but it’s – okay. I said that the – I’m not saying planning this strategy, that the amount of CapEx will remain the same. We are saying that some businesses in which we are entering in are less capital-intensive. So it could be reasonable to project a lower amount of CapEx looking forward. So it is not a matter of allocation of the same, more or less, €8 billion we are spending today. That is the amount of CapEx we are projecting from now to 2033, the period in which the composition of our portfolio would remain more or less the same. So definitely, one of the possible effect of this strategy will be a reduction going forward in the amount of CapEx we are going to spend annually.

Okay, thank you.

The next question is from Irene Himona of Societe Generale. Please go ahead, madam.

Thank you very much. And congratulations on a radical plan to decarbonize without trended resources. I had a number of questions. Firstly, Massimo, you just referred to the falling capital intensity. So by 2035, when renewables begin to step-up, what could that €8 billion current annual CapEx been reduced to, please? Secondly, you gave us a sense of the 15% return in the biorefineries today. What level of returns can we expect for the new future integrated renewable projects? And my final question is on the waste refinery, which is the only conventional asset to be retained. Talking about net, can you talk a little bit about whether you are overcoming the challenges of getting the project to increase the flexibility of the crude feedstock and whether you still expect dividends to start flowing in 2020, please? Thank you.

About – I mean the money we’re going to allocate by 2035 in renewable, if I correctly understood, Irene. So I said that, today, what we can envisage in 2035 would be a 50-50 capital allocation, wherein the remaining 50% we include in renewables. I don’t want to give you a lot of details from now to 2035. But what I can tell you is that – having in mind the amount of gigawatts we are projecting by 2035, in our planning exercise, we are not projecting any significant cost reduction for renewable projects.So we are just assuming what is the consensus on this respect. So you can definitely come out with a reasonable number to be allocated to renewable from 2025 to 2035 to grow up from 5 to 15 gigawatts of capacity. And then which kind of return we do expect from renewal, from – so we said 15% from – by refineries, and we cannot – there is no reason to imagine something different because that’s the market we see even in the next year. I don’t know if Pino would like to elaborate a bit more.

Thank you, Massimo. Just a few additional words. Our IRRS or the – by the current biorefinery, we expect it to repeat also in the other markets, in the other geographical areas where we expect to develop in the next future. Our strategy is to develop the biorefinery in the areas where we have the opportunity to collect feedstock or where the biofuel market will grow, taking into account also the future development of biojet. That will be a very challenge for the decarbonization of the aviation.

Okay. In terms of return from the other businesses, so mainly renewables or biomethane. So talking about the renewables, that probably is the most important. So we said that our expectation from renewable these days in the range of 8%, 12%, targeting brownfields because – and what we have done up to now has been to develop capacity in places in which we already own the land. We have some synergies that allow us to have a higher return from the investment, even unlevered. But definitely, you notice that what we are announcing today is a bit different, that we are announcing a much bigger expansion in terms of renewables, but by definition, cannot be reached throughout brownfield project only.So the expectation on this respect should be for planning purposes definitely lower than the range, around 10% we gave for the brownfield folks. So for planning purposes, we’re assuming something in the range of 7% unlevered. And then definitely, you can add all the additional advantages levered, but most important, the value to generate energy in an integrated way. So the most important contribution on top of the 7% that is a sort of floor on this respect would be integration between the generation of this renewable energy throughout the chain to keep our clients, to extract additional value from our clients that we’ll have a churn rate that will be definitely lower. As Claudio said before, probably in Europe in 10, 15 years' time, we will lose clients if not – if we do not provide them renewable energy. So this is the – definitely the plus we can see. And overall, that’s the reason why we expect a return that would be higher than 7%. And final advice.

[indiscernible] we will continue with the project of the CFP, CFP plus, the other – that they have the goal to increase the flexibility on the feedstock, the efficiency and the possibility to increase also the yields and the capacity of the refinery. With – in our strategy, where we consider to maintain in the long period, on your ways out of Europe as a traditional refinery, this is a unique opportunity because of the fantastic position side, the technology content, a possibility to improve the efficiency of these sites. In the mid to long term, we will develop project for the CCS or CCSU. That is another good opportunity because it all concentrated in only one week. And in a country where is also in progress projects like this.

Thank you. If I can just very quickly, Massimo, go to the first question on capital expenditure. In the plan by 2035, what sort of level of group CapEx, if you can indicate, are you seeing, so compared to the €8 billion current?

No, Irene. I don’t want to give you an absolute number. Please – I’ve set the proportion. That is a good guess about what we are planning today.

Okay. Thank you.

Gentlemen, at this time, there are no questions registered. Mr. Descalzi, would you like to make any closing remarks, sir?

Thank you for the opportunity. Now I want to reiterate what we said this morning, also during conference call. We have developed an industrial project that is in the transformation. We – clearly, we did that because we felt the need to transform our company because ENI will not be the same in 10 years, 15 years, 20 years. There is all the market that is changing. All the customers are changing the needs. Their requirement are different. And we work in the last six years really to be able to make an evolution in our business. I think that the technology is one of the main key to transform your – our business and generally your business. For that reason, we invested a lot in R&D in technologies.And we are applying our technology. That is a very important strength because that is another important component of flexibility. But we have to remember that under all these figures, there is a clear plan in terms of CapEx, in term of our cash flow, in term of EBIT. So – and in terms of a different kind of sensitivities. For that reason, we believe, that we see sensitivities that we run with different kind of prices. We start from our portfolio. Our portfolio is very flexible, because as I told you a lot, we’re considering all the different kind of products that we buy, that we sell. So all our package. We have this big flexibility because we can reduce drastically to our equity, reducing the third-party gas and with the transformation on the refinery.So I think that we are really building a new ENI. We don’t want to think – I don’t want that you think that we are depressing the upstream. It’s – on the contrary, the – what we built in the last six, seven years, in the upstream with exploration is giving the flexibility to really modulate our CapEx, to reduce our CapEx at the end of the day, so give more value to our shareholders and stakeholders. So thank you very much, and we’ll see you very soon to explain in details all the good and big work we have done. Thank you.

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