Eni S.p.A. (E) Q3 2020 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Eni's 2020 Nine-Months Results Conference Call and Q&A session, hosted by Mr. Francesco Gattei, Eni’s CFO and top management. For the duration of the call, you will be in listen-only mode. [Operator Instructions] I am now handing you over to your host to begin today’s conference call. Thank you.

Good afternoon. Welcome to Eni results for the first nine-months of 2020. It is a pleasure for me my first appointment with the investment community as CFO of Eni to introduce our new business segmentation. As you know, we set out our ambitious and detailed decarbonization strategy, along with a new operational and financial framework at our announcement in February and July. Today, we are reporting for the first time along the lines of the two new business units. In natural resources, we included upstream oil and gas, CCUS and forestry, the global gas and LNG and the environmental remediation activities of any rewind. In energy evolution, we grouped our downstream renewables CCGT retail gas and power. We are making good progress against the new strategy. It plays to Eni's legacy plans which give us immediately scale, the new energy side of the business, and environmental reporting record positioned us to attract new ESG investment, and finally, balance sheet strength further announced by strong investor appetite for the perpetual bond. Coming now to the results. In the first nine months we produced 1.74 million barrels per day. The reduction versus last year was mainly driven by the impacts of COVID-19, including upper class cuts, lower gas demand, mainly in Egypt, and the effects of contracts on previous some force majeure in Libya, partially compensated by positive portfolio price effects in PSA and the ramp-ups. Exploration results continue to compare Eni leadership with the main discovery in five countries that we'll detail later. Since January, we have discovered a 300 million barrel of oil despite the significant reduction of activity that we have implemented since the second quarter. Global gas and LNG delivered a resilient performance both in terms of EBIT adjusted and in terms of free cash flow generation. And finally, we are accelerating the CCS with a diversified portfolio projects in Italy and in Europe. Energy evolution is continuing to grow and deliver strong results, even in the current volatile environment, with an overall EBIT of around €320 million, 25% of Eni overall results. In retail, retail GMP proved to be robust with an EBIT of more than €200 million, driven by commercial actions on the customer base and the contribution from the sale of additional services. R&M was good, thanks to the residual marketing and the strong biorefineries contribution. The power segment posted positive results and benefited from asset optimization. While in renewal, we are reaching the target of 300 megawatts, and we are positioned to grow further. Turning to financial, Eni remained free cash flow positive with cash flow free working capital of €5.1 billion, pro forma leverage was reduced to 29%, including the €3 billion of the hybrid bonds. Before entering into the industrial performance, I would like to focus on our ESG performance. Over the past six years, we built a business model that now integrates the 17 sustainable development goals in all our decision, and we designed a clear path for decarbonization. This strategy is well-rated by the ESG agency as MSCI, CDP, Sustainalytics, Bloomberg ES and the Transition Pathways Initiative, that has evaluated Eni as a leader in different ratings. This recognition comes also for specialized institutes such as Carbon Tracker, which ranked Eni first among peers for the competitiveness of its un-sanctioned portfolio, emission reduction target, and for a mid and long-term price scenario among the most conservative in the sector. Moreover, we are confirming the FTSE4Good Developed and this year in the ESG iTraxx index. Finally, for the second year in a row, Eni is among the top 10 performer company for sustainability reporting according to the World Business Council for sustainable development. The strong ESG performance not only match our license to operate, but can open up a new source of sustainability linked farming which we will look at in the future. Let's now move to natural resources. Both upstream and global gas and LNG showed the resilient performance in this exceptional 2020. Upstream production guidance is confirmed, and we can narrow the range to around 1.72 million to 1.74 million barrels of oil equivalent per day. Upstream EBIT in the first nine months was €0.75 billion. The reduction versus last year is all entirely explained by the scenario that includes COVID, accounting for €5.1 billion, while €0.8 billion is due to volume and mix effects. Global gas and LNG EBIT was €0.4 billion, up by €0.2 billion year-on-year. The result was driven by the optimization of our portfolio, which counterbalance the lower PSV-TTF spread and the weakness in LNG demand related to COVID. In terms of full year 2020, we expect the global gas and LNG to deliver an adjusted EBIT in the range on €0.2 billion, and the free cash flow of €0.3 billion, due to lower optimization opportunities in the fourth quarter, as they were mainly realized in the first nine months. CCS is a key pillar of our strategy of decarbonization. It aims to reduce emission in order to abate industrial segments, decarbonized final products and reinforce the oil and gas in power generation after backup power plant for renewable energy. We have already identified the two main geographic hubs in South and North of Europe. The first hub is in Italy, in the Ravenna offshore. And the Adriatic Blue is the first CCS project in the Mediterranean, one of the biggest in the world, with a storage capacity between 300 million and 500 million tonnes. We are exploiting a unique opportunity thanks to the combination of depleted offshore gas fields, operational infrastructure already in place, and proximity to our onshore power plants and other industrial sites. This coupled with the scale of this project will allow us to keep costs very competitive, and they have a faster time to market. We plan to have a demo start already in '22, followed by a potential industrial start-up in 2026. The second hub is in the UK with two main projects, one in Liverpool Bay, where we plan to repurpose our depleted reservoirs and infrastructures to store third party's CO2. This month we have been granted a six year license to conduct feasibility studies, including GNG field [ph]. We plan to take the FID by 2023, with a start-up planned by 2025. The other project is Net Zero Teesside in the northeast of England. The initiative was launched in 2017 by the OGCI, of which Eni is a member. In addition, we are continuing to invest in forestry REDD+ projects. The main ongoing activities are in Africa, Latin America and Far East. For 2020, we expect 1.5 million tonnes of CO2 equivalent sequestration, mainly thanks to our conservation activities in Zambia. Exploration continues to deliver strong results, even in a difficult year, we have successfully discovered oil and gas in various countries. In particular in Egypt, we recently announced two new gas discoveries in the Great Nooros Area, in the conventional water of the Nile Delta, about 10 kilometers north of Nooros field. The recent discovery performing the Area indicates that the gas in place for the overall Great Nooros Area is now in excess of 4 Tcf. In Mexico, where Saasken well led to an oil discovery which may contain between 200 million and 300 million barrels of oil in place. It was the sixth consecutive successful well drilled by Eni in the Sureste basin. In Vietnam, the Ken Bau drilled in Block 114 has confirmed a significant hydrocarbon accumulation. Preliminary estimate of the Ken Bau accumulation provide a range between 7 to 9 Tcf of raw gas in place, with 400 million or 500 million barrels of associated condensates. In Sharjah Emirates, United Emirates states the Mahani-1 was drilled and tested with flow rates up to 50 million standard cubic feet per day of lean gas and associated condensates. Just one year after the signature of the concession agreement, the size of the discovery will be further assessed with addition of Liza [ph] as better time to market of this discovery is around one year, with startup expected in the coming months. In Angola, thanks for Agogo three wells, number three wells in Block 15/06, we increased by more than 50% the size of discovery. Now is 1 billion barrel of oil in place, with further upside to be tested in the northern sector of the global structure. Thanks to this track record, we confirm our 2020 guidance to discover 300 million barrels of oil at around $2 per barrel this year. Let's now turn to energy evolution. This new business group had a positive result showing a little bit of more than €320 million, representing 25% of the group EBIT results. In Eni gas e luce power and renewal segment, EBIT in the first nine months was €333 million, almost 60% increase year-on-year. In more detail, Eni gas e luce delivered outstanding result of over €200 million, an increase of 37% in the period, driven by the growth of the customer base and high contribution from non-commodity activities. Customers grew by 120,000 compared to the end of 2019. Our revenue levels results doubled year-on-year, thanks to higher dispatching contribution, optimization and strong installed capacity growth, plus 60% were yearend 2019. In R&M and chemicals, EBIT in the first nine month was substantially at breakeven, thanks to resilience of marketing activities and bio businesses. While the duration of refining results were strongly impacted by the weak margins and lower demands. We expect energy evolution to contribute over €0.3 billion in terms of EBIT in 2020, confirming the retail and service performance, whilst reducing R&M from €350 million to €150 million, as a result of the weaker scenario and assuming a farm of $2.7 per barrel in the fourth quarter. Let's see one of our energy transitional areas. Eni has been the first mover to convert a traditional refinery into a bio refinery, using the Ecofining proprietary technology and the results are now becoming material. Porto Marghera in Venice the first plant conversion in the world started up in 2014, and has a capacity of 360,000 tonnes per year. From end of 2023, our further upgrade is set to boost capacity to 560,000 tonnes, with increased feedstock diversification from food production waste, [Indiscernible] and the other advanced byproducts. The Gela bio-refinery in Sicily became operational in August '19, with capacity up to 750,000 tonnes, and is able to process wide variety of feedstock after pre-placement the only start up by the beginning of 2021. Our bio-refining system will become palm-oil free in 2023, with 80% of second and third generation system by the end of 2023, versus 20% today. The bio-refining activity has proved to be profitable with a contribution of €60 million in the first nine months of 2020, and is expected to have an IRR of 15%. In addition to the current bio-refining activities, we are also advancing another third generation biofuel technology. After launching in 2018 and waste to full demonstration plant in Gela, in July they may rewind to finalize the feed for our first industrial scale plant at Porto Marghera, near our Green refinery in Venice. The plant will jump to up to 150 tonnes per year of organic waste, equivalent to the quantity generated by 1.5 million people, and in the bio oil that can be used directly as low sulfur fuel for shipping or refinery to create high performance bioforce. Cash generation before working capital was proposed at €5.1 billion in the period. Excluding scenario in COVID, our cash flow would have improved year-on-year by €1.7 billion. €9 million cash flow more than covered our CapEx of €3.8 billion in the period and generated €1.3 billion of free cash flow. This is first approved for the capability of our company to react fast to minimize its financial needs in this difficult period. For 2020, we confirm our cash flow from operation before working capital guidance in the range of €6.5 billion, up $40 Brent. Turning now to the successful placement of our first hybrid bond for a total of €3 billion. I would like to highlight that the placements brings us a number of strategic benefits. It added a new layer of investment to support our transition plan, significantly strengthen our balance sheet with a pro forma leverage at the end of September now down to 29%, supports our strong investment grade rating and faster enhance our liquidity position, which is currently around €20 billion, almost five times our short-term debt. We have achieved a great results with our first hybrid bond issuance, with demand seven times higher than our original offer. This demonstrates the capital market confidence, Eni financial robustness and our new energy transition strategy. And finally, the optimization of our portfolio. It represents a never presented level to generate growth capital and strengthen the balance sheet. As part of return for ratio, we are designing -- we will dispose of non-core upstream asset, which no longer fit within our portfolio, pursue the optimization of our non-upstream portfolio, including infrastructure and logistic asset, consider replicating the Var Energi model, where we merged our asset with another company to create a dedicated independent entity able to grow and compete namely. Thanks to this activity. We are working on our green gross disposal for around €1 billion within the end of the year. To sum up our 2020 guidance. Notwithstanding the difficult operating scenario and depressed demand, in natural resources, we confirm our production guidance at 1.72 million to 1.74 million barrels per day, and for exploration to discover more than 300 million boe. In addition, we expect the global gas and LNG to deliver an adjusted EBIT in the range of €0.2 billion. Our mid-downstream in the first nine months improved year-on-year despite the COVID pandemic. And for 2020, we see energy evolution EBIT up over €0.3 billion. At company level, we confirm an operating cash flow before working capital a $40, of €6.5 billion versus net CapEx confirm at €5.2 billion. Furthermore, we expect to complete on the gross disposal plan of around €1 billion in the coming quarters. And to keep our leverage pre-IFRS [ph] below 30% by year-end. In summary, we have been resilient in the face of the great challenge of 2020. While we expect the recovery in the energy markets in 2021. We are prepared for continuous certainty. We have a high level of efficiency in our operation, flexibility when it comes to CapEx, and a strong balance sheet with high levels of liquidity and comfortable level of leverage. And now together with Eni top management, we are ready to answer to your questions.

Ladies and gentlemen, we will now begin the question-and-answer session. The first question is from Michele Della Vigna of Goldman Sachs. Please go ahead.

Thank you very much for the presentation. And congratulations on the very resilient results. I had two questions for you. The first one is about buybacks. At the moment, the share price of Eni is very depressed as is to be fair the rest of the sector. You have strong leverage, especially after the hybrid bonds. I was wondering, why not take advantage of the circumstances to start perhaps earlier than expected buyback program that would be highly accretive at this level of share prices? And then secondly, going back to your slide on the carbon capture project. You clearly have a wealth of opportunities here. I was wondering do you think that the existing regulation in carbon pricing is supportive of good returns on those projects. And what kind of dollar per tonne do you expect to be required for good returns as these projects going to full scale? Thank you.

Okay. Thank you, Michele. I'll leave the second question about CCS to Alessandro Puliti. On the first one about buyback, you know that we prepare the company for these five phases. These phases are, as I say uncertainties. We adopted our distribution policy to a variable element related to scenario, and we consider the buyback above a certain level of pricing. So, what we are working is working within this framework. We are working substantially to a larger optionality within the company, to ensure that we are able to pay the fixed component of our dividend at a lower price as much as possible. So, to work for are optimizing the company, the company performance, the company perimeter, the company efficiency. We work also in additional optimization related to portfolio. We announced today, this lets say advanced stage of disposal plan. And we reinforced the balance sheet as we mentioned before. So we were working on creating a company that stronger and stronger to manage the complexity and the flexibility. All these parts are a part of what let's say the management judgment in terms of dividend distribution policy. For the time being, I continue to refer to the original plan and to the original remuneration model that we presented to the investment community last summer. And now we leave the reply to Alessandro Puliti for the CCS.

Good afternoon. Clearly, the economics in this area are all about comparing the cost of the emission and the cost of the carbon capture and storage facilities. Regarding the current situation, we can say that with our projects that are leveraging on existing reservoirs, depleted reservoirs, and utilizing at least partially existing facilities, the cost of the storage can be considered compare that with the current value of the carbon certificate. To this we need to add the cost of the capture. And clearly, this is a subject to an additional cost that can be cover with the future increase of the cost of the carbon certificates, or a cost that can be incentivized by the different governments that are interested in putting in place carbon capture and storage policies.

Thank you.

The next question is from Oswald Clint of Bernstein. Please go ahead.

Thank you, everyone. First question, Francesco, just coming back to bio-refineries and strong performance in the quarter. And I think you talked about in the release of like satisfying strong demand. Could you quantify the sort of demand growth you're seeing for those bio-fuels just not, at least numerically? And is that that's being sold into transportation, or an income into fuels market has been blended with transportation fuels? Is that correct? And then even in your retail marketing I note your sales are back up to 2019 levels. Is there anything going on there in retail marketing in terms of incentives or it's just the lack of lockdown in the summer and then people driving again? And then my second question is just on Mozambique. It seems like the consortium is going back again for some lower costs on number and ultimately delaying that FID. How much more do you think you can get off the CapEx of this project? And when can we expect an FID most likely '22 at the stage, is that right?

Okay. Thank you, Oswald Clint. I forward your message or your question, the first one to Ricci and the second one to Puliti.

Hello, good afternoon. About the increase of the biofuel demand, we see that the strong demand is driven by the ambitious decarbonization mandate over Europe, due to the rule of ride [ph] tool. That foreseeing in the year the increase of the renewable in the transportation. 100% of the bio products are used in the transportations. And we expect further growing the demand in next few years, because of the recent announcement by the European Commission, confirmed by the parliament to increase the GHG setting targets to 2030. That in part will be attributed to the transport renewable components. Just to give an example, we see that in the last year, the HVO, they generated vegetable oil demand in Germany only in Germany, increased10 times.

Alessandro for the Mozambique.

Okay. Regarding Mozambique, in this new environment the operators are optimizing the development plan and maximizing synergies with area one, and exploiting every opportunity, including the potential cost reduction related to the core and lower cost market situation. Therefore, the FID that originally was expected in 2020 is postponed. And in updated project and the new FID date will be defined based on the results of this cost optimization phase. And probably in the next strategy, we can be more precise when this exercise will be concluded.

Understood. Thank you.

The next question comes from Jon Rigby of UBS. Please go ahead, sir.

Yes. Hi, good afternoon. A couple questions, please. The first is on what the oil, gas and power segment. I realized it's being broken down now. But I think you're retaining the sort of the legacy guidance, but it seems to me is in the first three quarters you hit that guidance. So implicitly, you're saying no money to be made in that business in aggregates in the fourth quarter? Just to confirm that's correct. And just then to sort of follow on to say, well, if LNG markets as they look to be doing are improving and historically, seasonally 4Q is typically better. Could you just walk me through what changes into the fourth quarter that would generate the worst quarter for EBIT from those businesses for 2020, which will look quite unusual? And the second question, I wonder whether you could sort of pick apart or give a bit more guidance on the €1 billion of disposals you're now looking at. I think it seems in the presentation that you linked that to some sort of green gross agenda, partnership et cetera, if I heard correctly. Is that right? Thanks.

I would say the gas and power results, and energy everything is clear. I just would like to understand better your last question. I missed what you were referring to?

Yes. I mean, if you're able to just go back in a little more detail on the €1 billion that you've identified for disposal, just to clarify in a little bit more detail. You did talk about it, but I just wonder whether you're able to give a -- shine a little bit more light on what's happening there. And where that's likely to come from? Thanks.

I'll answer to the disposal question, then about the gas and power I confirm that we kept the same guidance. And you are correct in saying that we have achieved the revenue. This nine months the results that we are planning for the year. Then I will leave to Cristian to answer to the last quarter performance we’re expecting, and also, which is potentially the upside eventually that could be linked to the LNG evolution. Now coming back to the disposal, clearly, we were referring to €1 billion say plan of disposal. It’s actually a negotiation activity or a tender activity, that is in a very advanced stage. You have already probably seen in the news, something related to Australia, but also there are other assets which are under discussion, and therefore we have decided to disclose this plan. Clearly, disposal optimization and focusing of our portfolio will be material part of future plan of Eni. We have to move our positioning from certain areas, non-core areas, to growing opportunities to the transition businesses. And therefore, this is the kind of activity we are targeting, various upstream assets and that is part of the future plan. About the LNG and the gas for the fourth quarter, now I leave the floor to Cristian.

Thank you for your question. So, on the fourth quarter, I think the most relevant issue that we have to face is the fact that in the first nine months, we have been able to capture most of the value out of our optionality. So we front loaded well let's say, options capturing and so in the last quarter of this year, we have actually less opportunity to be capture into the market. And if you add on, on top of that, the fact that the spread gets [indiscernible] which is an important element in our capturing opportunities, is fairly depressed and is expected to be depressed in the fourth quarter. This actually adds to my explanation. On the upside side, it's true that the LNG prices have been increasing in the last actually days. And yes, we are capturing part of that upside, but also you have to understand that most of our sales already locked into long-term agreements. So we have some spare opportunities, but there are not yet many. And if you sum up all these elements, we think that the guidance of around €0.2 billion should be confirmed.

Okay. Thank you.

The next question is from Irene Himona of SG. Please go ahead, ma'am.

Thank you. Good afternoon. I had two questions, please. So firstly, thinking about working capital movements in the fourth quarter, I wonder if you can give us some guidance on that. And secondly, in the downstream, your new guidance includes ADNOC pro forma. I wonder if you can let us know what is included in that guidance for ADNOC so, we have EBIT as reported on a like-on-like basis. And also in the downstream can you tell us what EBIT your marketing business generated in Q3 please? Thank you.

Okay. About the working capital movement, you remember that last quarter in the second-half, we had announced a change and expected to see observation of working capital in the range of 600-700. Actually, we are now assuming a lower performance. The lower performance is mainly related to the downstream business. So downstream mainly are referring to refining and chemicals, clearly are suffering of lower pricing and therefore, lower value what we are planning and lower demand. And therefore, your capability to absorb working capital will be lower there. You made a question about ADNOC. The performance of ADNOC in the quarters is minus 70. This is including both the refining and freighting. About the contribution instead of marketing in the retail marketing on the ninth month, you can consider something just a bit above €400 million in terms of EBIT.

[indiscernible] your questions have been answered?

Yes, thank you very much. Thank you.

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

Good afternoon. Welcome back, Francesco. I have two questions. One, regarding Libya, which you can give us an update on the country. What are the operating condition of your facilities there? And how much of Libyan production is included in your volume guidance for 2020? The second question is related to the CCS projects in UK. If you could elaborate on the CapEx related to those projects, and if they were included in your CapEx plan presented in summer?

Thank you. Thank you, Massimo. I'll leave the answer both to Alessandro Puliti.

Okay. Situation in Libya, I will firstly give you the numbers. So Libyan production it accounts for around 170,000 barrels of oil per day equivalent in our 2020 guidance. And regarding operational situation, we are operating I will say in a normal manner all our gas fields. And the situation on the oil field they were subjected to the blockade is certainly improving on the 22nd of September. ADNOC announced the lifting of the force majeure. And the production of what if fields were started on the 19th of October and the field restarted on October 26th. So now, all the fields in which we have an interest in Libya are in production. Regarding the CCS in the UK, we're being recently awarded by the license. And for the time being, we are carrying basically capital only for studies. As long as the project will be defined, then we will be defined the capital amount necessary for the transformation of our Liverpool Bay assets and depleted reservoir into CO2 storage reservoirs.

Thank you.

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

Yes. I only have one left. And I've recognized this maybe a little bit tricky one, to be honest. Last quarter, we spoke of course, it was about the dividends. And I do remember at the time, the indication was very clear that the floor dividend was sort of contingent on sort of $45 Brent. And I wouldn't expect to see a major revision already sort of so soon after. The previous major revision, but we're not at $45. And frankly, we may not be there for another couple of months or couple of quarters to come. So, I was wondering how you would suggest we sort of think about that comment that the floor dividend is dependent on $45? And over what time would actual oil prices need to sort of divert from that before you would start to think about the dividend again?

Martijn, I think this is a very good question. I think that, what is important for us, we aligned in the center of a crisis that I would say once rounds. And we call it the first rounds, now we're entering the second rounds, et cetera. But what is important for us is to exit each rounds faster and stronger. So what we did in the past months was substantially to equilibrate the company. So, the cash needs was rebalanced to reinforce the balance sheet with every bond. So, we had [indiscernible] layer. So we kept the leverage under control. And we are opening now additional flexibility. We have portfolio opportunities. We have additional CapEx flexibility. We have cost opportunities, reducing and slimming the company segments and several activity, also take into account of the new opportunity working that is related to my work. So, there are value segments that we are working on that. So, from that what we can see there is that the $45, currently $45 can be lower, is in our plan in our efforts to lower this level even further. We have an additional capability or flexibility to reduce it eventually, if necessary, CapEx postponing FID. And we have a larger flexibility in terms of liquidity. We have €20 billion of liquidity. So I think that in the current situation, even crisis is longer, we have a lot of tools in our arch that could be used to define the statistics and to bring the [indiscernible] sustainable, even in lower price.

Okay, wonderful. I appreciate that. Thanks, Francesco.

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

Hi, Francesca. Thanks for taking the question. It is not really a third quarter question, but it's just more strategy. Eni has been pretty bold in the last couple of years on the energy transition. And one of the things just happened in recent months as the markets got very excited by hydrogen. And it's not something you guys have really spent a huge amount other than perhaps what you're doing in the refining system. So, I guess the question is, do you think the market is getting ahead of itself? How do you think about this business opportunity? And how you can compete?

I think that I will pass this answer to Massimo, who is clearly in charge of all the activity related to energy, energy transition and as ask I say, the right information about the hydrogen.

Hydrogen for sure would be quite important new product in our future, mainly thanks to the CCS opportunity that we have that has been already commented by Alessandro. Because today, throughout the CCS, definitely, we could generate the hydrogen decarbonized hydrogen at a very, very competitive price versus the green one. So, we see such an application potentially, in Italy. We see the application in UK and elsewhere in the world, looking forward in which we could replicate the same scheme that we are applying in Italy and UK. So maybe production of gas to hydrogen, which is yes, for sale of totally decarbonized hydrogen. This is really important also in terms of timing, because we see certainly and we are working on the green hydrogen, thanks to our significant expansion in the renewable. But definitely we see the blue one coming first opening up the marketing, and so the green hydrogen when it comes to definitely could benefit from the work that has been done on the regulation on the demand creation in the different markets.

Massimo, can I ask when you speak to regulators and politicians in Italy in the UK and in Europe, do they understand that sort of blue hydrogen has to come first and green hydrogen longer down the road?

Discussions are taking place, because as you noticed, this is a brand new item on the table. So, we're passing some information to the to them based on our own experience as the other are doing. But I'm really confident that we can get there, because like-on-like it would be quite similar process that took place when the renewables took place. So the necessity some way to create a new market to create a new regulation, in this case could be a bit more complicated, because electricity could be transported throughout the existing grid, while on hydrogen, maybe you will need specific transportation assets. Unless, as it could be the first stage, the first companies taking benefit from the blue hydrogen would be close to the production itself of this hydrogen. So, I'm thinking about the [indiscernible] that definitely will be the first beneficial counterparty of this new product.

Great. Thanks very much.

The next question is from Thomas [Indiscernible] of Credit Suisse. Please go ahead, sir.

Good afternoon. I have three questions, if that's okay. Just firstly, on the refining business. When you presented your strategy at the start of the year, you've mentioned that your refineries in Europe, your plans are to convert them into green sites over time. Now, obviously, the refining cycle has turned and refining margins are in this depressed territory and probably going to stay there for some time to come. Are there any plans for you to perhaps accelerate that process of converting refineries into biosites, maybe [indiscernible] one maybe earlier? And just kind of link to the refining store. Obviously, you made a very big investment a year and a half ago in the UAE, buying a stake in that market, and generated another loss this quarter, very big one, minus €77 million. I'm not sure if your views have changed on refining. More recently, we've seen some of your competitors lower the refining margin estimates and taking a big impairment charge. Is this still an asset where you said you paid a fair value? And then my final question is just on the disposal plan, the $1 billion that has emerged out of the blue is just to kind of compare what you said in the past. What do you first mean by gross disposal? What is this meaning of gross? And then secondly, is there anything else in the hopper that you're looking to monetize maybe in 2021, so we can expect the additional disposals? Thank you.

Thank you, Thomas. I will leave the question about the refining to Massimo. I will answer to the disposal. In terms of gross, we think mainly before taxes, so substantially that is the value of the asset that you are selling, and that each one could have a different clearly fiscal component. On 2021 disposal and future plan clearly we are preparing, we are working on the future plans. And therefore, we are not yet ready to announce it to disclose also, because it's part of a more wider strategic program. And sure, there will be many, many opportunity to disposal. You know very well that M&A portfolio sometimes also with let's say apply in that approach to your various asset, various opportunities, some are achieving the results within the timeframe. So that is the plan for the disposal. About the refining business, the conversion to bio-refining and the EAU investment, I will pass the word to Massimo.

Yes. Talking to the bio-refinery, the answer would be yes. So, we announced 5 million tonne of target capacity by 2050 without specifying any interim result. But considering the very good results that we are achieving plus the significant market that we see is going to be open up including the biojet opportunity that could come in the very next year. Certainly, the idea of the transformation could be accelerated on this regard, I would say next strategy presentation, we definitely will give you an updated vision on this. Talking about ADNOC, I would say the negative result this year has been driven by two main results. First of all, you may remember that ADNOC suffered an accident at the FCC plant in 2019 that keep on recording negative effect in 2020. So, the first cause of the negative result is this one. And second definitely is the deep significant downturn that is touching the worldwide refining system. Having said that we remain convinced that the other refinery is a very stronger as the facility with the capability to resist in a normal and ongoing condition better than other assets. So, definitely we're making the difference between European capacity and so, the conversion to the bio-refinery versus such international we say Far East investment that is benefiting from more positive situation. So, we are convinced, and we see the possibility, the high probability to recover very, very soon and to resist to this negative way that to be in the condition to turn to positive result, as soon as the demand will return to a more normal situation.

Massimo, obviously 3Q was a quarter where the FCC was operating normally, and it was just industry refining margins being weak in the quarter. In that context, did ADNOC actually lose more money in absolute terms than your European refining business, which obviously has a lot more capacity than your equity stake in ADNOC?

On this, maybe we can give you additional detail, but the third quarter has been absolutely the worst. So, this is I would say -- I wouldn't say that this is the source of for changing our mind on this. I confirmed what I just said in terms of potential possibility forward.

Okay. Thank you.

The next question is from Peter Low of Redburn. Please go ahead, sir.

Hi, thanks for taking my questions. Firstly, just on the 2020 CapEx guidance, you seem to be annualizing well below the €5.2 billion guidance, especially looking at the run rate over the last two quarters. If there is any reason why CapEx should step up meaningfully in 4Q? Or is that a good prospect to come in below that level? And then the second was just another follow-up on the bio-refineries. You've talked about their strong performance, but utilization is still quite low, which is 53% in the quarter. Is there any reason why they're not running at high utilization levels? Thanks.

About the CapEx, I think that it is not [indiscernible] model. I think that is part of the activity, FIDs postponement activity. You have to consider that the second or third quarters were streaming light in terms of activity because of the COVID. Remember operation, we stopped the drilling, we stopped exploration. In the fourth quarter, you could partially say recover of activity at the end of the year. So, cannot be considered either, let's say on a quarterly basis. The second question, sorry.

Yes. It was just you told that the strong financial performance in the bio-refineries, but their utilization level has been quite low, which is 53% in the quarter. I was wondering why you weren't running them at a higher utilization level, if the demand was there. Thanks.

This I'll leave to Pino and mainly related to the ramp up of [indiscernible] and Venice maintenance, but I will give it to Gianluca Pino [ph] to answer.

Thanks, Francesco. In fact, in the third quarter, we had the planned maintenance in both bio-refineries. And this is the reason because the service factor has being so low. In the fourth quarter we expect to increase the service factor up to 80%. We have to consider that Gela refinery is still in ramp up. And the production done in the nine months, the overall production done in the nine months is slightly more than 0.5 million tonnes per year. That is a 60% more than last year. And we expect a continuous increase in the ramp-up up to the maximum capacity.

Thank you.

The next question is from Biraj Borkhataria of Royal Bank of Canada. Please go ahead.

Thanks for taking my question. I just had a follow-up on the bio-refining here. I recall, the cost of the Gela conversion was about €300 million for I think 750,000 tonnes. Now as you look forward to the next wave of conversions and the expansion we're talking about, can you say anything about how you're expecting costs to come down relative to the initial convergence? Or are those sensible figures to use for the expenses going forward? Thank you.

Sorry, you have to reply again.

The cost of conversion of refinery is very low, because what we have done in Venice and Gela is in the average -- in the range of $400-$500 per tonnes of capacity of investment, just because we are transforming existing and refining reusing existing assets. And in case of [Indiscernible] investment, it depend of the type of investment that we will do. We expect it to follow both solution, brownfield or greenfield depending to the condition in the area where we will realize the bio-refinery.

Okay. Thank you.

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

Yes. Hello, everyone. Thank you for taking my question. I have one left. Can you give us a feel of how your unique OpEx in upstream trending so far in 2020? If I go to 2019 level it was $16.1 dollar per barrel. And wondering if you can disclose what level you are over nine months or in Q3? And could you expect some further decrease or on the contrary because of portfolio mix or COVID events, it is a bit different? Thank you.

Yes. Thank you, Bertrand. In terms of OpEx, you have to consider that the portfolio mix with acquisition with a contribution of Norway has bit improved in terms of increase in terms of OpEx. The current level of OpEx is in the range of $6.5, $6.6 per barrel. You have to consider that also the reduction of production as we see a negative impact because is adding a fixed component that is worsening the unitary element the unitary value. The plan was to increase to $6.8 due to the COVID so to the lower production, but we were able to contain in the $6.5 to $6.6 range.

Thank you.

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

Thanks very much. And [indiscernible]. Question on Zohr and Egypt, if you don't mind. Can you just remind us where production is? It's all now, how its profiled to-date? And what your expectations are as we go into next year, assuming the export markets for LNG continue to stay, they continue to appear more robust than that's been the case nine months ago? Thanks very much.

Thank you, Lucas. I'll leave now the answer to Alessandro Puliti.

Okay, so Zohr will average in 2020 the level of 2 BCF per day in terms of production, while in the third quarter the average is 2.2 BCF per day increasing. We see an increasing demand from the export side in Egypt, clearly this is linked to the to the winter time. So we expect production in the near-term for Zohr to further increase.

And where is capacity at the moment now? We are north of 3 or…?

The price, the gas price for Zohr, you mean?

No, I'm sorry. I meant, what's the production capacity? And so --

The production capacity of full production, Zohr can produce 3.2 BCF per day.

Okay. And do you have any comments on when you think you might be running at capacity?

Running a capacity, we are required a full recovery of the demand in Egypt, and also an improvement of the export capacity. So, we can see it in a couple of years at the last.

Okay. Thanks a lot.

[Operator Instructions]

Okay. I think that we are finished. I don't know this was the last question. Otherwise, thank you very much and let's see what's happening in the near-future. All the best of all of you.

Thank you. That was the final question. Thank you for participating in the Eni conference call.