Eni S.p.A. (E) Q1 2021 Earnings Report, Transcript and Summary

Good afternoon and welcome Eni First Quarter 2021 Results. 2021 is still a year of transition and the first quarter has demonstrated a different pace of recovery for our businesses. The quarter was positive for oil, with an 11% growth of Brent price in euro versus first quarter 2020. We have recorded a partial rebound of demand, now at around 95 million barrel per day and a more materially disciplined supply, mainly thanks to the OPEC+ cut and natural decline of state oil production. Likewise, chemicals rebounded strongly, benefiting from industry-wide disruptions due to the winter weather in the US and higher demand in Asia. On the other end, other sector are still facing a weak environment. Downstream was impacted by negative refining margins and the lower volumes due to the lockdowns, mainly across Europe. Finally, notwithstanding the increase of gas prices, the spreads between PSV and TTF showed very low differential due to the new supply sources in Italy and the increased demand in Europe and Far East. Notwithstanding this mix of conditions, we are steadily making progress in our recovery. ENI EBIT adjusted at €1.3 billion was flat versus first quarter 2020 and it was a 2.7 times higher than the previous quarter. Net profit adjusted at 0.27 was also five times higher than the first quarter 2012. In retail, in upstream, our production of 1.7 million barrel per day is in line with our early guidance. Production was 5% lower than last year, with a steady gas profile and 9% lower in all production due to the OPEC cut, a lower investment in production optimization because of the pandemic. In exploration, within our infrastructure lead strategy, we discovered 120 million barrels of oil equivalent, mainly Norway and in Angola, creating synergies with existing gaps in facilities. The Cuica discovery in Angola is closer to our existing FPSO in Block 15/06 and will be connected to the production within six months. Global gas and LNG EBIT was slightly negative due to the loss spread between European hubs and the due to the reduce optimization opportunity with respect to last year. We expect the coming month remain challenging for this business. With regards to energy evolution, we are rapidly progressing to expand the value of our retail renewable businesses. We entered the Spanish market this quarter, acquiring both retail and renewable asset, as well completing the acquisition of a 20% stake in Dogger Bank, our first wind offshore project in UK. The merger of the retail renewable businesses is progressing. And further on in the presentation, I will outline our plan In refining a negative margin of minus $0.6 per barrel in the quarter and weaker retail sales in Europe, minus 10% year-on-year impacted our results. Lockdown and the limited air traffic demand waited on the consumption of the most valuable products. In biorefining where weaker demand has also put pressures on margin, we have now started up a new Biomass Treatment Unit in Gela, that will enable us to receive up to 100% waste and residue feedstock in line with our palm oil free target by 2023. Moreover, we made a material move in this promising sector with the acquisition of FRI-EL, a leader in the Italian biogas production. Versalis our chemical company delivered its best results since 2018. Coming on to financial, with CFFO of €1.96 billion and CapEx of €1.4, we were able to generate a robust cash flow. Even take into account a portfolio net acquisition of €400 million we kept leverage flat at 31%. And now let's move on to natural resources. Upstream EBIT in the first quarter was €1.4 billion, an increase of around €300 million, compared to the first quarter of 2020. Thanks to the improved market condition. And notwithstanding, the lower level of production at around 90,000 barrels per day, year-on-year, in line with our yearly guidance production in 2021 is confirmed at 1.7 million barrels per day, considering an OPEC cut of 35,000 barrels per day. In the second quarter, we expect production to be at around 1.6 million barrels, due to the maintenance that we originally planed in 2020. And we postponed in 2021, due to COVID. We plan therefore a progressive rebound in the following quarters. In 2021, with CapEx kept below €4.5 billion, we will be able to fully capture the benefit of a higher scenario. Regarding GGP and 21st February 2021, the first LNG cargo was successfully loaded from Damietta Plant. To-date at all a total of nine cargoes had been loaded. And we expected to maintain stable production during the rest of the year, for a total of around 40 cargoes across 2021, contributing to sustain our gas equity production in Egypt. In terms of GGP EBIT first quarter was slightly negative, down by around €260 million, compared to the previous year. The result was mainly driven by the very low spread between the hubs -- European hubs, minus 84% year-on-year that leaded to limited trading opportunity, especially in Italy, impacting for around one-third of the overall losses. The additional negative impact is mostly linked to the lack of positive one-off optimization that occurred in the first quarter of 2020. If the current scenario is confirmed for the rest of the year, we expected GGP 2021 EBIT to be almost a breakeven, one ways to delivering a positive free cash flow of around €200 million also thanks to the contribution of the deal that lead to Damietta startup. Before moving to energy revolution, I want to focus briefly on the startup of Merakas field in Indonesia that we have announced earlier this week. Merakas is a concrete step in our strategy focused on increasing gas production, leveraging our infrastructure lead exploration and fast time to market. And excluding the six months of temporary suspension due to COVID between March to September 2020 Merakas has been developed 11.2 years from that Id as a tie-in to the existing Jangkrik FPU. The field is estimated to hold about 2 trillion cubic feet ethylene gas in place and will contribute with an equity production of about 30,000 barrel per day in ’21 and a 50,000 barrel per day in 2022. Merakas gas will be partially sold to the domestic market and will also support this tension of the life of the Bontang LNG facility. Moving on to energy evolution, any gas elude in the renewable is growing rapidly. EBITDA in the first quarter 2021 was €220 million, 17% higher than last year, thanks to the strong performance of EGL which benefited from a growing customer and service basis. The combined entity retailer renewables were richer and EBITDA 2021 of €600 million growing almost 70% on a yearly basis. Downstream EBIT in the quarter was slightly negative. In R&M weak demand and particularly for jet fuel due to the widespread lockdown measures put pressure on oil and bio refining margins. We expected a gradual recovery over the course of the year with easing of COVID measures. Versalis posted a positive result for the first time since the second quarter of 2018, driven by polyethylene and styrene’s demand and the good margin environment. We expect this positive environment gradually reduce in the coming quarter, but the results of the chemical segment is forecasted to remain positive. For the full year, the lower than expected refinery scenario will be almost compensated through a remediation action plan, as well as a positive chemical trend. The overall EBIT adjusted pro forma for downstream R&M in the Chemical will be in the range of €400 million. Turning now to cash, In the first quarter of 2021, the adjusted cash flow from operation before working capital was at €1.96 billion exceeding our overall CapEx of €1.4 billion. Looking at 2021, we expect a cash flow from operation before working capital at replacement costs higher than €9 billion at that Brent price of around $60 per barrel and assuming our refining margin just above zero. This cash flow generation will more than cover our 2021 CapEx of almost €6 billion. Before turning to the Q&A session, I would like to spend a few minutes on our plan for retail and renewable businesses. Today, the Board of Eni has approved the launch of a strategic project to evaluate the best industrial and financial plan for the new entity resulting from this integration. This operation is part of any wider committed -- commitment to delivering value through the energy transition and represent a material step to reducing this scope 3 emission for our domestic clients, a journey that we started a few years ago. Our renewables in 2015 when we created the energy solution, the business unit that has progressively expanded in the span of technology and geographies and it is now managing more than 1-gigawatt of capacity installed, all under construction in more than 10 counties. During this period, we have built different joint ventures to create the growth opportunity in US with Falck renewables, in Norway with Hitec and in Italy with CDP. In 2021, we have also joined the world's largest offshore wind project in Dogger Bank in UK. These joint ventures together with other than our own initiative will be the organic source of our growth. In the meantime, we’ve expanded our retail offer. In 2017, Eni gas e luce, the historical unit of gas and power dedicated to the final market was established as a dedicated company for the sale of innovative energy services to the final customers. EGL expanded its international footprint setting up a new company in Greece in 2018 and entering the Spanish market this year. Furthermore, EGL has announced its offer with additional services, including energy management, electric mobility and buildings energy upgrading, providing products and services to almost 10 million clients. Looking to the future, we expect the retail G&P customer to grow to 50 million within a decade with an increasing supply of renewable power and biomethane. Renewable capacity will reach more than 1-gigawatt by the end of 2021, including projects under construction reaching 5-gigawatts of installed capacity by 2025 and 15-gigawatts by 2030. Through this new entity, we are creating a unique proposition both for our customers and our investors. In an increasing competitive market, renewables will benefit from a captive customer base representing a stabilizing factor for revenues, giving more optionality in the use of the market opportunities and concept. At the same time, retail will be able to sell green energy produced by preparatory plans. We believe that this will be a key marketing differentiation factor enhancing our commercial attractiveness. Finally, additional services, including distributed solar and energy management will complete our distinctive approach. Overall EBITDA of the new entity is expected to almost double from €600 million in 2021 to around €1 billion euro by the end of the plan. Operating cash flow generation will double as wells thanks to resilient and free cash flow positive retail businesses accompanied by the renewals business growing cash contribution. Eni transformed an internal team supported by strategic and financial advisor to lead the project, that we'll evaluate multiple option to extrapolate the maximum value from this new entity. Option under considerations, include a stock exchange listing through Initial Public Offering for the sale or exchange of a minority stake in the new entity, during the course of 2022 subject to market conditions. The market valorization will unlock value capturing the better enterprise value EBITDA multiples that today the market recognized through renewable a retail companies. Now, together with Eni top management, we are ready to answer to your questions. Thank you.

Thank you. So the first question is from Michele Della Vigna of Goldman Sachs. Please go ahead.

Francesco, thank you very much for the presentation. I had two questions, if I may. The first one is on Eni gas e luce, I was wondering, do you see this as your global day call for power, which include all of the renewable work that you're doing in your upstream heartlands in the Caspian in Africa, in Southeast Asia, or more as a European focused company? And then secondly, your ongoing exploration success continues to provide you with a large panel of short cycle development opportunities. At the time, when the macro recover is finally coming through, do you see an opportunity to accelerate the development of these – of these projects – as the most interesting investment decision?

Okay. Thank you, Michele. About EGL and then I will leave it to Alessandro Puliti, the answer about the exploration in FID. Now, in terms of EGL, what I can tell you is that the – this is a vehicle that for us is a vehicle to decarbonize our domestic clients. So, that is the main scope of this vehicle. This vehicle is substantially a new entity there is no such kind of players in the market, the market is now specialized or is building in generating capacity, or on the other side is selling power to the to the clients. We are generating now, we are creating this new machine, as I put together these two to a screen share. And in the middle, there is value, because in the middle there is energy management, there is a capability to absorb the rotation of the renewables and so gaining value from that. And there is clearly value in the two sides of this proposition, because as we said that, there is a stabilizing the renewable – renewable sales to captive client, and there is a green marketing proposal that is attractive for the domestic – domestic customers. In term of the – the boundaries of this vehicle, this vehicle will be clearly mainly an OECD player, because clearly in this area there is the full chain combat at the back there is no an exclusive let's say OECD. For example, we have opportunity in certain country that we believe are quite promising. For example, we think in Kazakhstan, countries offer EMP, regional historical positioning in this country, we could just be posted to the generation side in the future, we don't know the future, we will see what's going on. But the generation side will remain attractive. So, where there is a market that is let's say, more mature advisor, there is an opportunity to sell directly to the final customer, otherwise we will sell to the grid. For examples in Australia, where we have activity already existing. What will not be included is that kind of generation capacity that is, they say embedded treaty connected to our upstream plan. So, in that case, this capacity is just a facilities offer of our upstream activity. And now I leave the second answer to Alessandro.

Okay. Good afternoon regarding ability to transform a recent exploration success in accelerated development program to capture oil pricing upside, I will say that this is exactly the strategy with sector, because our exploration is mainly devoted to the so-called infrastructure lead exploration, so means targeting prospects nearby existing infrastructure and facilities to accelerate time to market and bring new production to the market. Also we have a strong input what is called the near field exploration. So, directly close the two fields already in production. I would like just to give you an example on this recently in the western desert of Egypt, our carrier discovery led in few months really the regional three, four months to from zero to an addition of 50,000 barrels of oil to our Agiba operating company in the western desert of Egypt and this was immediately put into production right after for successful exploration wells.

Thank you.

The next question is from is Mehdi Ennebati of Bank of America. Please go ahead.

Hi. Good afternoon. Thanks for taking my questions. So, two questions, the first one regarding extreme. So, this is applied with the sensitivity to the oil that you provided first a few months ago. You first confirm a little bit would have been much higher than what you expected. So, can you please tell us why there was such a difference between what [indiscernible] and the figure based on your sensitivity? Was there any one-off or anything like that which this is actually office related? And the second question is on study, if you pursue the principle of integrity as you said, This is good. But if I look at the initial rate of your chemical plants, which remained at 70%. So, this means that you are able to take advantage of this strong economic environment that the local demand doesn't have [Indiscernible] pollution or should we expect the high value of weight in the coming quarters of each division as the market remains.

Okay. I will answer to the first and then I will leave it to Adriano Alfani, the answer about the chemical, the chemical performance. Actually once we apply the sensitivity, there are two elements first of all of principle to be taken into account then I will describe also the specific case. The two elements that you have to take into account that on a quarterly basis, I think that there are various moving parts. So it is capturing our shift quarter-by-quarter. It is, let's say, relatively not precise. Another part that you have to take into account is that in the sensitivity clearly there is -- we say that these kinds of sensitivity are designed with some movement of price that are relatively small. So in the sense of $5, $7, because what's going on is that if you have a $17 change, if you compare, for example, the last quarter 2020 with the first quarter 2021, first of all, you have 50% of that it is gas. In that gas, there is -- just to give you an idea 20% that is porter, so is collecting the dynamic of that quarter. Then there is another 30% that is all linked and once it is all linked, doesn't mean that is rolling off that quarter. Generally speaking is a nine month average of the previous nine month. So that will be, let's say, a sort of lag timer change in the price of that thing -- of that a 30%. And then there is a 50% of gas that is related to fixed price or former price which are completely, let's say, not referenced or not linked to variation of scenario or very marginally link to that. So, that is the first element that you have to take into account. Our linear approach or sensitivity in a quarter, it is in such a size of changes, it is not correct. Then there is also some PSA impact that could also impact -- affect. Specifically, for the quarter 2020 and early quarter 2021, there were two factors. At the end of the year, generally, you have also one-off. For example, at the end of last year, we had an insurance benefit. We have a settlement in West Africa. So there were some changes that impacted positively that quarter in the EBITDA, at the EBIT level. And then there was also a change of mix, the change of lease, for example, was just to give you a figure -- the larger figure was a large increase in the gas of Zohr, the [indiscernible] formula and there was, for example, a lower contribution in Indonesia for Jangkrik that is more related to the spot market of the JKM. And then there were also changes for example, in [indiscernible] in Nigeria. So, even if you have some absolute gas trend or absolute volume trends similar, there are a lot of moving parts. Another element then justify that once you have this larger variation, it is more appropriate to apply a certain degree of discount. It is not large discount. But it is a, let’s say, reflecting all the factor that I mentioned now. Then I leave it to Adriano for the answer about chemicals.

Sure. Francesco, can you hear me well? Okay, Thank you. Yeah, as you described, the situation in Tijuana was extremely positive because we have seen a global recovering demand, mainly in Asia and North America, but also Europe strong recovering, and every bound that was medically faster and bigger than was expect at the beginning. This was also a compliment with the additional problem on the supply side. Why say additional, because already at the end of 2020 with hurricane season in the US, we start to see some limitation product from North America and certain shortage in Europe. And this shortage has been increased in Q1 due to a very bad weather impacts us. We'd know that probably -- VNC for the last I don’t know how many years. And also some I'm playing events in Asia and in Europe. As you say our integration was in the range of 70%, 72%, while we could not have won more, mainly for two reasons. One reason is related to internal effect, because we have some unplanned events, very minor unplanned events that lead as a little bit in terms of producing more, but also because in some stream of business, we also buy products in the market. So, like benzene, like [Indiscernible] and few other chemicals that been very short in the market, we also face some challenge in order to secure and so this is the reason why in Q1 we run as much as possible, but asset utilization was in the range of 72%, which was anyway, very much in line with Q4 2020. In the second quarter, our asset utilization would be impacted by few event that we have already announced. I'm talking about events like the turnaround in Brindisi -- of the tracking in in Brindisi, some activity that we also announced this week in mantova. So, we are going to have limited capacity driven by turnaround season.

Thank you very much.

You’re welcome.

The next question is from Jon Rigby of UBS. Please go ahead.

Thank you. Hi, everybody. I just have a quick question on the transaction -- or the proposed transaction. The first is, is the transaction in of itself all that you plan to do or is there some second wave that will emphasize the value extraction? So, what I mean is clearly this will raise cash for Eni corporate? Is there a plan for what you would do with the cash from any transaction that you're proposing to do, enhance a buyback or something just to actually physically demonstrate and highlight the differential in valuations? And then the second question is, we sort of wrestle with this issue of the paradox or trying to maintain the advantage -- or competitive advantage that integrators or companies have in entering some of these markets with the skill that they have against the sort of integrated discount on operational side? So, is there a way a structure -- a management and legal arrangement that you can set up that maintains the sort of independence of this new entity, that is also able to ensure that you share the skillsets that existed in the Eni group? Thanks.

Okay, Jon. Clearly, about the first question, you touched at important point. I would like just to recap what are the three main rationale about this transaction and this merger, and the potential IPO disposal the next year. I think the first element is an industrial rationale. The industrial rational is what I mentioned. And this integrated value chain that will stabilize value, that will add the value at the end, and that will create value in the middle. So I think this is something that could be done only by an integrated player. The second element is that to create a vehicle that is working in this new area of growth, in these new businesses with the right and proper metrics. Whilst I speak about metrics I speaking about the multiple value, but also speaking about the cost of capital, and speaking about the dividend policy of this vehicle and speaking about the leverage level. So we will let's say create awareness for these growth area of businesses. In the current order, if you enter and play this game, you will die immediately, we set multiple and once this new opportunity enters your portfolio, they will be immediately discounted as you are an integrated oil and gas company. So we want to have the right currency to play this game. So the third element instead is what you mentioned as a part of that -- this opportunity is an opportunity to free cash to stabilize and improve the distribution policy of Eni and growing force substantially both the capability to growth of the new entity. So accelerating CapEx thanks to the benefits of this new equity, let say inflows, but also on the leverage that you could be -- you will be able to attract and substantially relieving Eni from the cash -- let’s say cash impact to invest in these new businesses. So I think that it is too early now to design a news of the proceed. But what I can tell you what is visible is that there is a win-win opportunity both for the new entity and the for mother company. Clearly, we wanted to keep and this is coming to the second question, we wanted to keep the control of this entity because we believe that we won’t prioritize the value. And I've mentioned this one before, but we want to also to prove that this is just one of the legs of our decarburization plan, Eni will be an energy company fully decarbonized in all segments in all sectors, in processes and products. In this way, we are let's say creating the tool to let's say decarbonize our domestic clients. But clearly, we are decarbonizing our upstream with a net zero target in 2030, the downstream you know that we have the target 2040. And overall, we have a script three target. So we have then to capture the additional element of our emission flows. So, there will be other clients, the mobility clients that have to be decarbonized and there will be also the clients that we don't touch directly, so the clients that are just user of our oil and gas production. So I think that we wanted to keep this link because – and this is the reason we are thinking to a minority and minority stake disposal, because I think that this is an early phase of the journey. And it is a process that we'll touch overall the company and we believe that this kind of discount will be progressively reduce because of the overall effort that you will see in all segments.

Right. Got it. Thank you. That’s very clear.

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

Hi, I have a few questions. The first one on the tax rate. I think there are a couple of other responses. At the group level, 75% is probably be higher than what I had expected. So if you can maybe give us some additional color. But then at the same time, I think the upstream was quite, was quite low, despite the increase in volumes from Africa and Egypt. So maybe can you tell us how we should model the tax rates in the upstream, at the group level going forward in 2021? And also, maybe an update on the renewable pipeline. Can give us maybe some color on the next key project coming on stream. And also upstream, you will find a new JV with GDP and permits. I was wondering, what type of opportunities do you see? And also the type of permitting that Italy is quite slow to get permits for – for new projects. So and you have a quite an ambitious target 1 gigawatt of new capacity. Yes, I’ll leave it there.

Okay, thank you. Then I will answer to the tax and then I will leave it to Alessandro to drop the answer about renewables. About the tax rate, it is right. It was a 70%, 73%. That is a bit higher than our original estimate. I think that the overall I would say group tax rate have to be rather take into account that we have a very negative performance in this quarter of RMM and the GDP, so the segments that are substantially with very low tax rate, and we have to take close into account that we didn’t recognize certain deferred tax assets in Italy, due to this – to the potential I would say, future recoverability. So, there is a one factor that substantially impacted this effect. Without this, this one-off element, we would have been to the same level of the guidance 60% tax rate, up around $60. About E&P, the E&P tax rate is 50% that is quite low. It is quite low because in award off $60 you will have benefit from many countries. And not only let's say like the higher tax rate typical country that are Libya, Egypt, Middle East, et cetera. But you benefit also results from other regions -- OECD counters etc cetera, Italy. So, the overall E&P is benefiting of this mix of different contributors. In terms of this petition of the tax rate, in the full year actually I can confirm that we return to the overall 60% -- 65% because this one-off element that you have seen in this quarter is expected substantially to be minimized area solved progressively. So, I think that the guidance again on a quarterly basis as a value, but cannot be taken in absolute terms. So I have to be a bit correct in yearly basis, it is confirmed. And then Alessandro, if you are able, if you can please answer to the question of renewables growth?

Yes. Renewables, as we said, we expect to have -- to exceed one gigawatt of capacity at the end of this year installed or under construction. And coming to your questions, specifically, on the pipeline, we are also working to reinforce our pipeline towards the target of 4 gigawatts in 2024. We are doing these along a number of lines of development, I would mention a few. One is our JV in the US together with Falck Renewables is now -- the JV is now fully operational and is taking advantage of an improving framework generated by the new administration. In Southern Europe, we are working on a number of targets, especially, in co-developments, as the one that we announced just one months ago with a Spanish company, X–Elio by which we will acquire three photovoltaic plants in the south of Spain. We are targeting, particularly, those countries because these are the countries where we expect to be able to explore -- to explore the more synergies with our retail business that also entered Spain, for example, in the last month And last month, but I would say also very important is what we are doing in Italy. Our joint venture with Cassa Depositi e Prestiti is also now fully operational. And it's working in order to reinforce our pipeline of Greenfield projects, including through the enhancement of real estate assets that we own or CDP owns or republic administration owns, and are now unutilized. This is we think a field of development that is very interesting from an economic point and also very much in line with the development of this sector in our country.

Okay. Do you expect a bit more favorable environment easily following the new government? Do you think they are permitting will be accelerating the process?

Certainly, we see the conditions now for the environment to improve, especially, in the authorization processes that are, let me say, the weak points -- the weak element that has slowed down the development of renewables in the last few years. There are certainly a number of good announcements in this respect by the government.

Okay. That’s fine. Maybe if I can squeeze final one, it’s probably not a clear task finding the right compound for the renewables in the retail business together, what valuation do you have -- what multiples we should think about for that business?

Alessandro, I think that clearly, it is too early because we have -- we are selling this concept that is clearly a new concept. But just to give you some elements coming from the market, our E&P measure is now valued four to five times EBITDA, I think it’s valued between seven to eight times of EBITDA, and the renewable player is valued clearly based on the growth assumption et cetera between 10 to 15 times of EBITDA, there are also section above that. So distraction of light of the vehicle outside has already immediately valued proposition. The combination of these two entity clearly could move the potential mix at the vehicle in the range of a double digit multiple

That’s very clear. Thank you very much.

The next question is from Irene Himona of Société Générale. Please go ahead ma’am.

Thank you very much. Good afternoon. Two questions please. A question on Mexico, if I may? They have just passed new hydrocarbon law, rolling back the energy liberalization of recent years; you have lot of presence there, obviously. I wonder how we should think about the risks to any in particular to the full development of Area 1, or indeed in terms of potentially higher tax and royalty levels in Mexico. And my second question is on the global gas and LNG business, when it comes to making delivery profit in quarters when you have some contractual renegotiation. So if we move that, we are left with essentially a trading business. How should we think of this business, because clearly we cannot model or predict contractual settlements, or how should we think of it going forwards, please?

Thank you. Thank you Irene. I leave the answer of Mexico to Alessandro Puliti, and on the LNG business to Cristian Signoretto.

Okay. Regarding Mexico and our project and new laws, so our project is progressing, as you know, we are in the early production phase nowadays, and we are constantly producing above 20,000 barrels of oil per day, in the next year, it is foreseen the installation of the FPSO and then we will ramp up to its maximum production. So we are not envisaging impact on our project due to the new law, because as far as we understand it won't affect this project, it won't affect other let's say oil trading business and not development, this kind of developments. So for the time being, we don't have any doubt on our project delivery in Mexico. And I will leave the floor to Christian for the LNG.

Good afternoon. So let me let me elaborate maybe -- the answer on two pillars. On the gas business which is mostly clearly geared into Europe and in Italy, as you pointed out this is clearly affected by the renegotiation that we have with our long term supplier as it used to be in the past. As you can imagine, this quarter was affected by the negative impact of the spread between the Italian market and the European market, which in turns, clearly affects our long term supply agreements and clearly so this has triggered a renegotiation that will bear his fruit in the in the future. When it comes to the LNG instead, as you know, we are we are planning to grow substantially our portfolio in sync with our upstream activities. In the first quarter, we sold 1.5 million tonnes of LNG, but you know, in that quarter, we don't see any contribution to the DAMIETTA startup and in the in the future quarters, you will see that clearly also contributing. And in the future I mean, also thanks to other US equity project, this will be increased even farther. But you as you can imagine, now that that activities is linked to the missing part of the value chain, so the movement of the flat price of the LNG and of the gas is capturing into the app screen. Here we are taking care of the -- let's say, trading margin as we call it, which comes from the differential between the price at which we buy the LNG and the price at which we sell it into the into the into the global market.

Okay. Thank you.

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

Thank you. Francesco, just I wonder if you could help think about the cash flows from some of your other startups. You spoke about Morocco, in terms of Algeria and Angola and Sharjah recently the ramping up there once. It's a little bit opaque, I guess on pricing and Taxes, just some indication or color around that maybe the cash flow per barrel that-- those projects are really delivering please. That would be helpful. And then could talk around any feedstock pricing pressures as it relates to your bio refineries and obviously Gela has the locally sourced biomass, but what about the palm oil as it relates to them. Has it being pressure there in the first quarter? And how do you think it plays out through the rest of the year? Thank you.

Thank you, Oswald. I leave this second question to [Indiscernible] and then we will return to you about the project that you describe in terms of contribution. Clearly, we are not providing details at the project level. What I can tell you, I will describe later. [Indiscernible] please?

Okay, [Indiscernible] speaking. Yeah, about the pricing of the feedstock in our biorefinery, yes, the first quarter was -- we had a quite a pressure from the palm one which was the main component of our feedstock for the biorefinery. But we do expect a significant variation in the course of the year, because we have put in operation our BCU that will allow us to change significantly distillate of the feedstock for the biorefinery.

Now, about the cash flow, clearly, each comp, each project has his own cash, also because as is characterized by completely different products. The project in the UAE Sharjah is a project of gas with condensate so wet gas. It is quite attractive with more cash flow. The one of Algeria that you are referring to, the Berkine is made of two different streams, one is a gas production and the other one is an oil production that we started in year earlier. What I can tell you is that, substantial in terms of cash generation, we are perfectly in line with our expectations. So, I think that you have seen from the cash assumption in terms of cash flow from operation, that we are presenting the $60 worth. Actually we are capturing the full benefit of the scenario to consider that this is on a yearly basis. We will be able to capture both of the oil, but also the gas that is growing, as we mentioned before, because of the time lag, in particularly, in the oil link, the contracts clearly not in the fixed domestic sales. But just to give you a measure, we presented our plan in February with a $50 assumption of oil, with cash flow from operation, it was a close to €8 billion, just below €8 billion. Adding up this $10 changes assumption of a $60 Brent, we will gain practically 1.5 in terms of oil of Brent effect, but you have also to take into account of Serm that we are presenting with an assumption in that sensitivity in -- close to zero. So we are losing an additional €300 million. You could add something on chemicals, but at the end of the day, if you make this sum, you reach a value closer to the €9 billion, in excess of the €9 billion. That is exactly the reference that we are presenting to you. Actually, in our in our forecast, we are also gaining a bit more, thanks to the performance, to the mix. So I will say that, everything is actually in line with our prediction. And the contribution of these new fields are taking into account in the overall mix, contributing with positive value. Because they are essentially onshore brownfield in the case of Sharjah and the case of Berkine. There is a clearly a lot of facilities. And there is clearly a benefit from their point of view.

That's really helpful. Thank you, Francesco.

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

Thank you and good afternoon. I have a question on the announced transaction. You mentioned among the options an exchange of minority stake. So, could you give us some color on this option? Would you eventually swap your stake for another minority in a renewable company, or it may also include other E&P assets? Are you looking for synergies with another renewable retail company? And the second question is, back on the call of the full quarter, it was announced there that you will eventually have a transaction in the upstream like the one with Vår Energi for a joint venture in – upstream assets. Are you targeting larger portfolio of assets for the JV, which include the multiple countries in the same region just to understand the perimeter of over dealing in the upstream?

Okay. About the first transaction, the retailer renewable, clearly, we have listed the three different opportunities. Clearly, the IPO, the disposal to a strategic player, or eventually combination, clearly the sort of element cannot be a combination for an upstream player. We wanted to create the retailer renewable champion. So we have to assume it to work within that – that playground. So I think that, this is the logic of this, of this operation of this potential option, because at the end of the day, we listed all the potential option in this early phase of our – of our study. About the model Vår like initiative, if you remember, once so we presented the strategy, we say that, we would like to have this kind of combination, because we wanted to create a vehicle that are able financially to be standalone. This is different from the retailer renewable, in this case, the target is to have a big consolidated vehicle as well, able to collect cash et cetera, into distribute dividend and to reduce the CapEx exposure in particular in certain countries or regions that are more or less a capital intensive. So, from the point of view, we are actually working very hard on that, there are more areas of interest, more geographies of interest, and potentially different operation, not all at the same let say degree of maturity. But clearly, we are thinking to combination, where we could have a few country together, not too many country, because once you build this kind of vehicle, you have to think on our operational synergies, you have to think of financial attractiveness, and also you have to think on governance. So, you cannot be just to say to put together in a big soup all the – all the – all the ingredients that you like, you have to select the right one.

Very clear Francesco. If I may squeeze in another quick – very quick question, just on for our models, considering the changing in the assumption of oil for cash flow generation, what would be your new net working capital impact for 2021?

On working capital, just sampling substantially to around 500 million of absorb of working capital. So we continue to have this kind of assumption.

Very clear. Thank you very much.

The next question is from Giacomo Romeo of Jefferies. Please go ahead.

Good morning. The first question is on renewable capacity growth you discussed, a lot of the focus of the JVs you mentioned seems to be tilted towards solar, and your scale at the moment in winter is, you could say somewhat suboptimal. Can you talk a little bit about the potential bidding opportunities to add capacity in this technology? And where do you see wind – offshore wind capacity going in the context of your 5-gigawatts and 15-gigawatts targets? And the second question is, you mentioned that EGL power and renewables is just one of your decarbonization legs. Your biofuel business is also quite unique in the context of the integrated sector I think. So do you think that the value of this business is fully recognized at the moment and have you consider a similar path to the one you announced today with for any gas evolution, power renewables for this business as well? A – Claudio Descalzi: Okay, Giacomo on the second question, then I leave to Alessandro again about the wind offshore plan. Clearly, we started with this domestic decarbonized model, because we think this is more mature. There is a large client basis. There is an opportunity to grow faster in renewable capacity. And the reason I say this opportunity to create the join an integrated model. So I think that this is the first step that we have designed and I agree with you that the other element that is quite interesting is the bio refining and the mobility client. The mobility client is the other side of the domestic client. The domestic client is exiting, taking a car and moving around. So it's truly at the same mindset to receive asset of the carbonized product. And you know, that we have the second let's say, internal capacity. We are the second operator, the second player for bio refining capacity. We have the refining that is a unique technology, that they give us a lot of flexibility. But we prefer to grow further and to let's say, reinforce this model before thinking to something more. Clearly, in this current configuration, all the technologies, these new business may other in the overall evaluation of E&I are relatively discounted. So, we have to think about that. And Alessandro, if you want to integrate about the wind?

Yes, I can confirm that looking forward, we are going to rebalance our partnering portfolio between solar and wind. In the past, we focused particularly on portable site projects. But we are now shifting this and we are looking to geographies a wind function, wind projects under construction currently in Italy, in Kazakhstan, we enter a wind project in Iowa in the US. So, what we are targeting is to come to 2024 with a split of renewable power generation between wind and solar, I would say 60% solar and 40% wind, which will also include as you mentioned, offshore wind after our entry into Dogger Bank, we are also looking to those kind of projects.

Thank you.

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

Thanks very much. And Chester, thanks for the opportunity. The commentary around trying to extract value is very encouraging or thinking much more about how to play with your portfolio. Just going back to another aspect of that, as part of the strategy is clearly to realize, value through diversity in some of your upstream positions. And I wondered how that market was looking for you at the present time. I'd assume more robust, but any commentary around potential divestments, JVs et cetera would be helpful. And secondly, if I could just go back to LNG, couple of questions really. First, Maracas, how much of the production of Maracas, I presume all of it goes through on saying, but how much of it is actually contracted to other buyers at the present time? And how much do you end-up being able to play with? And staying with LNG, on a Damietta, two questions, unfortunately, one is, can you just explain the structure? I presume that Damietta is a tolling facility? So, you told us that take the offtake? And secondly, to what extent will that support those productions at 3.2 bcf a day, through the course of this year? That's it. Thanks very much.

Okay. About disposal then and the other question about LNG are given to Christian. Now, the disposal clearly we are working, that we presented a plan of disposal for the four year playing range of €2 billion, so particularly 500 million per year. And actually, this year, we are expecting to have a net effect between disposal and acquisition of, let's say, minus €500. Because we are selling for €500 and potentially having, let's say, potential acquisition in the range of €1 billion in different sector, I am not just to referring specifically to upstream. We are clearly working and differentiating the absent side. There are at least four or five assets that are under tender in certain cases quite advanced. And I think this processor is maturing. There are assets that are coming from the dual exploration approach. Asset that are related to see mature countries where we consider no more cores in our portfolio and other opportunity that we could monetize and analyze that through this event or partial disposal of a smaller stake. So, the process is coming in. It takes time, because negotiation requires a lot of detail. And therefore you will see some effects in the coming months. About LNG?

See, on Maracas, I can tell you that a quarter of that production is going to go the domestic market as per say the government requirement. And then, the rest of it will be feeding the Bontang LNG facility. And it will be already put onto the market within the next lets say, weeks and months. And we are discussing with the authorities and also with the potential of takers clearly including itself, -- entering to long-term agreements, starting from, I would say 2022, for securing the uptake of the LNG from the Maracas production. When it comes to the Damietta, I think, clearly right, Damietta is -- you know, you can consider it as a tolling facility whereby Eni owns 50% of the equity and thus, let say provide the tolling arrangement. When it comes to the link between the production of Damietta and [indiscernible] I leave the floor for Alessandro who can give more colour on that.

Okay. Sure. Regarding Zohr and Damietta, clearly there is no --- a direct commercial link. But there is clearly a production link between the two facilities, I gave you just an example Q1, 2020 Zohr production average 2 bcf per day. In Q1 2021 Zohr production has average at 3 Bcf per day. So, clearly a Zohr is producing almost 50% of the gas produced in Egypt and it tax as main producer in the country. So the opening of these export opportunity as contributed substantially to reach the nearby the maximum capacity also our production benefiting certainly the upstream side together with the mainstream side.

Some forecast for the fourth quarter of this year or an average?

The four quarter in average would be certainly above three 3.3 Bcf per day while the average of the year where we include the clearly less consumption during the summer will be around 2.7 Bcf per day.

Thank you very much.

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

Yes. Hi Francesco. Two question, if I may related to gas prices? And so first, my understanding is that on Zohr gas price realization there was a formula linked to at Brent with flow at $4.2 and end cap at $6 per Mcf when oil price were above $60 oil? So my question is, is there a lag effect on Zohr, meaning that could we see if oil price stay above $60 in the next quarter? An uplift in your natural gas price realization? That is my first question. And the second question is on the Tcf spread, though you clearly mentioned that you have suffered this quarter from this narrowing spread. And the reason behind that is and you may share your view in that is for the new volumes from that release, but in a way is that the structural narrowing and your action to renegotiate some gas contracts?

Okay, I leave it to Alessandro and to Christian about this answer about Zohr and the spread.

Regarding gas pricing Zohr formula? Yes, I confirm there is a lag time effect and we will see the full benefit of this $60 per barrel toward the end of the year and beginning of next year. I’ll leave it to Cristian to complete the answer.

Yeah. On the spreads -- clearly, let's say you're right in the sense that the inflow of gas from that pipeline has the brought to the market roughly 60 bcm growing to 8 bcm per annum of extra capacity. And this has clearly triggered let's see, we shuffle, let's say of the supply source of the country. I will say the quarter -- the first quarter has been also affected by clear -- very strong TTF price linked to the LNG tightening of the market, which actually brought away LNG from Europe towards Asia and the in turn [indiscernible] was let say, brought up by this dynamic while PSV actually was not really linked to that dynamic. So I would share your idea that going forward, maybe not at the level of the first quarter. But in general, the spread between PSV and TTF might have a new equilibrium, which is not lets say €20 per 1000 kilometer that we've seen in the last two years, but it's probably more in the range of the 10, 12. Having said that, this as you said trigger in fact, our renegotiation with our suppliers that we started already and will bear fruit in the coming months.

Thank you very much. Extremely helpful.

The next question is from James Hubbard of Deutsche Bank. Please go ahead, sir.

Hi. Thank you. Good afternoon. Two questions. The first is, you mentioned real estate in the context of renewables, I guess you're talking about Brownfield industrial sites. But correct me if I'm wrong, and if you though, you seem quite excited about it. But in my mind, I'm just seeing some old time fuel industrial sites, and I don't see how much acreage that could be and why -- if you could give some color as to why that's an exciting aspect from the perspective of presumably installing solar panels? And then the next question was, could you just clarify, I thought I heard you saying on the call that full year refining and marketing chemicals, you're looking at 400 million EBIT. Did I hear that correctly? Thank you.

Yes. This second question, then the first one I return to Alessandro. About the EBITDA clearly, this is a revised the guidance that includes a progressive improvement in the refining margin. So potentially average in the range of particularly 1.8, 1.9 that is the half of the margin that we are assuming the original budgeting. And we substantially have this factor between the range of 300. On top of that, there is the benefit of the chemical businesses that is adding an additional 100 versus the previous guidance this means that there is a reduction of these two segments together in the range of less than €200 million of EBIT. About the real estate on particular use of industrial plant, I leave this to Alessandro to provide you more color.

Yes. We will refer to both industrial sites, but also to areas that are simply unused and they are under the control of the different entities in the public administration. So we think that this is all in all [Indiscernible] plant and sizable potential that we would like to unlock also we have the additional of profile of Cassa Depositi e Prestiti in Italy. We are working in this new joint venture that has been incorporated a couple of months ago. So it is both industrial sites and unused areas.

Okay. And I guess the advantage in Italy is much faster permitting, is that correct?

Yes. It's on permitting and we count very much on the simplification that the government announced recently, together with the availability of the areas itself in Italy. This is an issue once you exclude the agricultural areas, then you're left with a significant constrain that is hindering, let me say the growth of renewables in the last few years.

Okay. Thank you very much.

The last question is from Lydia Rainforth of Barclays. Please go ahead, madam.

Right. Good afternoon. Three questions if I could. Firstly, on the biogas market that you mentioned earlier in the exhibition that you did? What is the scale of that market that you're seeing there and will that fit in the energy evolution part of the business? And then secondly, of course I think I missed this earlier on but in terms of July and the review on prices the share buyback scheme, is that just automatic in terms of the idea that there will be a buyback that you will start in the third quarter? Thanks.

Okay. About the biogas I leave the answer to [Indiscernible] and then I will conclude with a buyback. Thank you.

Okay. [Indiscernible] speaking. About the biogas our recent acquisition of the company FRI-EL put us in condition to have a very high pipeline of conversion of plant that produce a gas from biomass and bio methane compressive and liquefied. And in particular to increase our capability to enlarge this businesses acquiring also the organization that is already in the field of this. Our ambition is no our plan is to provide at the end of the plan only biogas to the service station that sell gas compressor to liquefied. Considering that only the pipeline already planned that should be a transform from gas to methane in a couple of years, we will reach more or less 50 million cubic feet -- cubic meter per year of monument tank. This is a very large quantity to start.

Yes. About the distribution policy the buyback, clearly you know that we design this approach to this variable distribution substitute to oil price and this oil price reference will be fixed in July. So, what I can say now is that the clearly Eni is in very good shape. I think that the quarter of this year even the difference in the consensus in the sanction that were made by the application sensitivity proved one thing that we are back in generating cash -- material free cash. And that was a just an early phase. So, it is a quarter that still mix of certain components of the marketing component, the gas and power components. So, there are still rooms of improvement that will be clearly a merger that will emerge during the years and also EMP will fully capture in the gas component that the price variation. For this reason we presented that $60 reference that grows that above – at that level there is a significant amount of free cash. Today the price is 67 so is even higher, the year today it is 62, and our buyback scheme start or is let's say, triggered by an assumption of 56. So, we are in a good shape. The market is positive. There are very good sign. There are, let's say, good premises. And clearly, we will check this in July. In July, we will have six months of a market. The market I will say is rebounding all the trend in particular in western countries proves that there is an increase the phase of removal of the lockdown. There is only India now that is materially impacted. And there are a lot of positive sign that, let's say, give us a very positive confidence for the future. So I think this is my last and positive sentence for this call. I don't think there is any other question.

No, sir. I confirm there are no questions at this time.

Okay. So I thank you all and we will remain in touch for any further qualification that could be required. Thank you very much.

Thank you. Bye.

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