Eni S.p.A. (E) Q2 2022 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to Eni's 2022 First Half Results Conference Call hosted by Mr. Claudio Descalzi, Chief Executive Officer. [Operator Instructions]. I am now handing you over to your host to begin today's conference call. Thank you.

Thank you. Good afternoon, everyone. Today, we will focus on three aspects of the year-to-date. Firstly, our execution on strategy amid highly volatile economic and geopolitical conditions. Secondly, the financial result that underpin our ability to invest and pursue our strategy across the cycle. And thirdly, our delivery of competitive returns to our shareholders. In a market characterized by extreme volatility and complexity, we continue to progress on our strategy with effectiveness and determination. Technology and its fast track deployment is a key element of our transformation. And in the first part of 2022, we delivered three major successes. On LNG, with the on plan and budget startup of Coral offshore Mozambique, we have opened a new path for this country and developed a leaner LNG offshore scheme. This experience gained from these projects will allow us to replicate a similar scheme in Mozambique in other countries, by accelerating the time to market of gas resources and reducing financial exposure. We sanctioned the Baleine project in Cote d'Ivoire, just four months after its discovery. It will be the first net zero development in Africa for scope 1 and scope 2 emissions. After a production test on the price of well, we can confirm the potential of at least 12,000 barrels per day, an increase of hydrocarbons in place to around 2.5 billion barrels of oil and 3.3 TCF of associated gas. We expect first oil in the first half of 2023. And on future breakthrough technologies, the SPARC magnetic fusion plant constructions is underway in Boston, with a planned startup in 2025. Eni is the largest shareholders in the CFS ventures and the successful $1.8 billion funding round at the end of 2021 will carry the venture through this important stage of developing a new source of clean energy. But our transformation is not limited to the deployment of technology. It also requires construction of new financially attractive business models to capture new investor and new sources of capital that will help to accelerate our growth. The success of Vår Energi, the largest IPO in oil and gas company in Europe in over a decade, is an example of our business combination model that we want to replicate. With Azule, the partnership between Eni and BP in Angola, we are creating an African giant. All the conditions are close to be met and its formal establishing will take place in the next few days. With an average production of around 250,000 barrels per day and great potential synergies in exploration, operation and development, Azule will be one of the strongest upstream players in the years to come. We are also advancing in the creation of our company dedicated to sustainable mobility, targeting completion by the end of this year. This company, together with Plenitude in the retail household business, is functional to reach net zero Scope 3 emission in mobility. With the first vegetable oil produced in Kenya last week and the development of network of agri-hubs in Africa, we are on track to securing diversified feedstock to expand our bio-refining capacity and we will reach a target or 35% vertical integration by 2025. Gas security is the key topic of this moment, a recurring concern for government customers and investors. Eni was already progressing with the replacement of third-party volumes with new equity gas and after the invasion of Ukraine, we further accelerated this plan of substitution. We moved quickly, leveraging our huge discoveries and strategic relationship. We signed new gas supply arrangement with Algeria, Egypt, Congo. And just last month, we entered Qatar North Field, the world's largest LNG project. The initiatives are designed to deliver up to 20 BCM of gas supply by 2025, effectively in covering 100% of 2021's Russian gas import. This gas will be produced in project where Eni has a material upstream stake, securing diversified supply to meet customer needs, with also boosting Eni returns. Focusing now on the gas market itself. In order to protect the company from disruption in the short term, we have increased the flexibility and resilience of our delivery chain. On top of diversifying our gas sourcing and filling storage well ahead of winter, we have also diligently addressed our financial position. We have carefully manage our exposure where we deviate from our most hub-based pricing model. We have addressed potential mismatches in our supply commitment and we have ensured our financial hedging is consistent with our physical supply. To really place these in perspective, I want to emphasize that the company's remaining 2022 contracted obligation can be fully met with no Russian sources without any additional costs. Alongside managing unprecedented level of market complexity and moving on with our transformation strategy, we continue to deliver excellent results. EBIT for the first half was €11 billion and for the second quarter €5.8 billion. We have generated €10.8 billion of CFFO in the first half of the year, fully funding our CapEx of €3.4 billion and our euro distribution plan. Importantly, our financial performance was not just in our upstream division, but also balanced with significant contribution from GGP in first quarter and R&M in second quarter. To this, we can add growing support from our associate that emphasize the emerging value of our satellite model. Even with the building working capital resulting from higher gas prices impacting both seasonal gas storage and sales, plus the effect of various portfolio activities, we have reduced our net debt which now stands at 15% leverage, confirming our financial resilience and offering strategic flexibility. Upstream captured the improved scenario and maintained discipline cost management to deliver almost €5 billion of EBIT in the second quarter. As we continue to focus on high value activity, we also expect production to increase in the second half of 2022, thanks to project ramp ups, for instance, Coral in Mozambique and Ndungu in Angola, plus production to come onstream from Berkine fast track activity in Algeria and the reduced impact of major turnaround that affected Q2. Second quarter was also impacted by force majeure in Libya, Nigeria, and Kazakhstan, which substantially explains the production shortfall against our expectations. In addition to the startups, we have made progress toward FID in the second half of 2022 for the Marine XII full field in Congo, Melehia phase 2 in Egypt, a number of new projects in Angola, plus the next Karachaganak expansion in Kazakhstan. Our exploration activity continued to yield excellent result. We have discovered 300 million barrel of resources in the first half. The second half 2022 has already started on a very positive note, with the first appraisal well at Baleine. We are raising our guidance for discovered sources for the year at 700 million barrel. After a very good first quarter, GGP broke even in the second quarter, as expected. We see second half EBIT skewed toward the last quarter as in the normal seasonal pattern. The second quarter was a standout quarter for Refining & Marketing. It benefited from a robust scenario, but the results are really driven by a major increase in the utilization rate of our Italian refineries, which is 20 percentage point higher than Q1 at 90% and our management of energy cost impacted by high gas prices. In the first half of the year, we saved €200 million through energy supply optimization. In May, we also restarted our Gela biorefinery hydro plant contributing to the capture of favorable market conditions. In chemicals, despite a challenging market, Versalis has delivered positive results, thanks to improve margins on polymer and proactive mitigating action on cost and energy uses. As a reminder, our investments for making Versalis a fully sustainable and differentiated company are focused on four strategic areas – specialties, circularity, biochemicals, and efficiency. In this context, by 2025, added value products will grow to over 40% of portfolio. Plenitude continues to grow its renewable installed capacity by almost 35% year-to-date, and on track to add more than 2 gigawatts installed by year-end. In the quarter, Plenitude delivered 119 million in EBITDA, nearly 50% of all 2021, thanks to its growing renewable contribution and the retail performance features strong sales in solar distributed generation and energy efficiency services. We continue to see additional strategic value in a listing of the company and we confirm it remains our intention to pursue an IPO, subject to market conditions. In line with the commitment we made in March, we have updated our assessment of the 2022 buyback upside price scenario, taking into account the brand price to date and the expected trend, market fundamentals and potential risks. Accordingly, we are announcing an upside brand price of $105 per barrel for the year as the basis of the incremental free cash flow to be distributed. In addition, the stronger foreign exchange rate and the strength of refining margins and the gas price led us to conclude that a larger €2.4 billion program, an increase of €1.3 billion versus our original target is appropriate and consistent with our strategy. Based on the current share price, our dividend and buyback correspond to a distribution yield of 14%. We expect the buyback to be completed before the end of Q1 2023 and confirm that we will further update our scenario and plan at our Q3 results in October. I will now summarize our updated guidance before concluding. 2022 production guidance is 1.67 million barrels per day, in line with the original 1.7 million barrels per day when adjusting for the risk of ongoing force majeure interruption, most particularly in Nigeria, Libya and Kazakhstan. We expect Q3 production to be broadly in line with the annual average. Exploration is expected to beat the original outlook, with at least 700 million barrels of discovered resources at the cost of around $1.5 per barrel. We confirm 2022 GGP EBIT at €1.2 billion, a figure we raised at the first quarter, and Plenitude's full-year EBIT at over €600 million. Business actions and favorable market conditions and favorable market conditions for R&M allow us to materially improve our guidance to an adjusted pro forma EBIT now expected between €1.8 billion and €2 billion. Looking forward, we are raising our guidance for 2022 cash flow from operation pre working capital to €20 billion at $105 per barrel. And the line annual CapEx is unchanged from the regional plan and expected to be €8.3 billion at an updated foreign exchange rate assumption. We also confirm our 2022 dividend per share of €0.88. And as I have just disclosed, we will announce total distribution with a share buyback of €2.4 billion to be completed before the end of the first quarter 2023. Leverage is expected to fall further to end the year at around 13%. To conclude, we have delivered significant strategic progress over the first half of 2022. We're have continued to secure the long-term for Eni, especially in the context of new gas supply, while protecting it in the short term from the effect of the market volatility. We are moving forward in our energy evolution business, growing Plenitude and establishing a standalone sustainable mobility company. Our excellent financial delivery is critical to finding new investment plan through the cycle, being a reliable supplier of energy to our customers in all scenarios and delivering on our commitment to our shareholders. So now I conclude my remark and we are ready with our top management to answer your questions. Thank you.

[Operator Instructions]. The first question comes from Irene Himona of Société Générale.

Two questions, please. Firstly, can you say what the cost to the various windfall taxes are for Eni this year in Italy, but also the UK? And then secondly, on Plenitude, should stock market conditions remain difficult for an IPO over the next 12 months, how does that impact Eni strategy? Would you then instead consider selling to an industrial partner perhaps?

Francesco is going to answer about the tax and then I say something about Plenitude.

The sum of the two taxes is in the range of €800 million on an yearly basis. You know that we have already paid on installments related to the first payment of the Italian taxes, while the second part is 40% of the taxes that was in the range of €500 million and the remaining part will be paid at the end of November, and, clearly, the same will occur for UK taxes.

For Plenitude, clearly, what prevented us to go ahead with the IPO was clearly the market condition, volatility. We are still there. Maybe worse than before. And we are convinced and determined to go add when the condition will be reestablished with the IPO. But we have to say in a highlight that the strategic move is Plenitude. It's not the IPO. IPO clearly is a good tool to give value and independence to the company, but the strategic move is Plenitude itself because it's functional to our aim to sell the carbonized product – green, blue and biogas – to our client to reach the net zero in our Scope 3. So, this strategy is Plenitude and then we have a tool to give additional value, the IPO. So, we go straight with our strategy to increase renewable and what it's doing because Plenitude is increasing at a very good pace the renewables. But that is the strategy. I'm sure that we are going to find a good window of opportunity for the IPO. If you are looking at other ways, at the moment, we are focused on develop our company the best. And we'll see what we are going to do in the future.

The next question is from Oswald Clint of Bernstein.

Just in the context, please, of gas security, I wanted to ask about Mozambique again. Galp's chief executive keeps continuing to sing your praises on Coral LNG, but I wanted to get your thoughts on the potential for, let's say, another Coral floating LNG facility. And also, even on the onshore, are there discussions around smaller or mid-scale LNG trains at Rovuma that could perhaps allow you to get this project away in a shorter time period than many people expect? That's the first question. And secondly, good evidence of the natural gas reduction here in Refining & Chemicals. I wonder if you could just quantify how much percentage-wise you've been able to reduce? And actually, even on GGP, Europe's now trying to reduce demand by 15%. I think you've seen some decreases in Italy and France in the second quarter, but increases in Germany. How do you think the demand for your sales for gas plays out, certainly through the second half of the year, please? I know you've given the guidance for GGP, but that's just an overarching question.

I'm going to answer for Mozambique and then my colleagues, Pino Ricci and Christian, will answer for the remaining questions. So, we are discussing – you know that we are working on the offshore and in our joint venture, in our companies with Exxon and the other company who are in charge of the upstream and the offshore. Clearly, we are discussing – we are proposing a possible additional offshore development through LNG, the same fast LNG that we are developing in Congo. So, something that is very fast, a small sized that we can replicate, size that can range between 2.5 and 3 million tonne per year. So, that is something that is on the table we are discussing. I can say that, among our partners, there is a positive view but we have to wait for a final approval, but that clearly is a way to go faster and develop LNG in Mozambique. We have a huge amount of reserve there that is in our block. We have about 80 TCF. So, you can imagine that is the moment. So, we are really focused and determinated to go through these developments. For onshore, onshore is not in our end. Clearly, it's the hand of Exxon. The big train, all the engineers, everything has been done. I think that is just the question to understand if we find a reasonable security condition to develop this activity, but if we think about small size, I think that the offshore – would demonstrate the offshore is the faster one. So, I think that – I never thought about a small train onshore, but I think that a good way because there is no constraint is small size, offshore LNG. And now, I turn to Pino for the other answer.

About the gas reduction in the refineries, our reduction reached more or less 70% versus the previous one. This was a pathway started last year when in the second half of last year, we started to – the spike of price, 70%. And so, when the Ukraine-Russian war started, we were already very strong to push again the reduction of gas consumption in the refinery. On a yearly basis, it means approximately 0.6 billion, 0.7 billion cubic meter of consumption. If you consider that, in the same time, we crossed from a minimum utilization of the refineries because low margin, COVID, low consumption, so to a big jump to the maximum utilization because the lack of Russian. And so, the combination of the two fact allow us to reach this result. And take into account that, for instance, our Sannazzaro refinery today has gas imports closed, completely closed

Pino means that, in Sannazzaro, we are producing synthetic gas and replace gas with other less expensive feedstock, energy feedstock. That is the secret. And then, we jump from 70% utilization rate to 90% utilization rate. So, this action has been really important, and that's explained also the difference between the consensus and the result. The same in Plenitude. But I think that we can also explain that. Then there is a question about gas. So, Christian can answer. Christian and maybe Stefano.

On the gas demand side, as you pointed out, during the first six months of the year, in Europe, substantially, let's say, the overall demand has reduced. Well, differently in the different countries because we vary between, let's say, for example, in Italy, the drop was around 2% and in Northern Europe was actually a bit more. The reason behind that was a bit warmer winter than last year. So, we had the less consumption in the household segment. And clearly, after the spike of the prices, we have seen also some reduction in the industrial demand that actually Pino was talking about what we have done on the refineries to reduce the demand and this is happening clearly a bit across the board and we see a reduction of around 10% on the industrial sector, especially in the very high energy intensive sector. Going forward, clearly, acknowledge the agreement that EU will have about reducing the demand. And for example, that again depends a lot on the various countries. For example, in Italy, even the specificity of Italy, this 15% actually boils down to 7% reduction. But the way we see the impact of the demand reduction vis-à-vis our accounts, we think that there is actually a marginal impact on that because we will have maybe less revenues coming from the margins to our sale. But on the other hand, we are going to gain from optionality vis-à-vis the wholesale market and reduced capital absorption. So, not a big element.

The next question comes from Mehdi Ennebati of Bank of America.

Congratulations for those strong results. So, two questions, please, on my side. First one, I am trying to understand the potential impact for Eni in case of a gas price cap for household in Italy, given that you are involved in gas distribution in Italy. So, can you please remind us what is your market share on gas distribution for households? And can you also tell us if you hedged on that, your selling price to your customers via derivatives, if you have to sell the gas to the spot price? In fact, I would like to know if – in case of a gas price cap for households, will you have to subsidize the household? Or does it exist another, let's, organism which can, let's say, take that potential cost? And a second question regarding your renewable diesel business. So, I remember that in February, you told us that in 2021 that business had negative EBITDA contribution. What about the first half of 2022? Are you seeing some improvement here or would you say that the situation remains quite difficult because of fixed cost inflation?

Stefano Goberti is going to answer to all the questions.

In terms of gas price cap, very difficult to comment on a measure that need to be implemented first to be commented upon. On our side, we sell gas to residential, both on a fixed price – and in that case, of course, we edge – or on a variable price index to the PSU. So, in that case, we are naturally hedged in our portfolio. We have been managing a lot during this first two quarter through energy management not to get hit by the volume risk. And I will say we have been successful because the result in the quarter have been very positive. The second question on the renewables, last year, we had a minus €10 million result in EBITDA. These first six months, plus €90 million because of our generation and the enterprises that we are able to capture because of the unique model of Plenitude of putting together merchant position on the renewable together with the client base.

If I may, just to come back to that gas pipe cap, let's say, subject. So, you said part of which – part of the gas is sold at a fixed price and then you hedge and you also have an exposure to the variable price. Can you tell us roughly what is the proportion of your exposure to the variable price?

This is quite commercially sensible (sic) [sensitive] information. So, I would refrain from saying it.

Next question is from Alessandro Pozzi of Mediobanca.

The first one is on the buyback. You increased it quite significantly to €2.4 billion. Would it be fair to say that, basically, any additional excess cash generation is going to deployed through buyback rather than an increase in dividend? And you're happy with the split between dividend and buyback at the moment, given that the new dividend policy was introduced about two years ago? And also, in calculating the €2.4 billion, can you maybe give us a sense of how you got there, whether you're targeting a specific percentage of cash flow or whether you want to be above a certain level when it comes down to the leverage? The second question is on gas demand. We've seen the Europe announcing a voluntary 15% reduction. In Italy, as I mentioned, it's 7%. But how exactly it's going to be implemented at 7%? I'm asking you because you're one of the largest retailers of gas. So, how do you think the voluntary demand in Italy can be implemented?

The first question is for Francesco on the buyback and also additional possible distribution dividend Francesco. Francesco, you have a of things to say.

Actually, you know that we presented the distribution policy in line with our strategy presentation. Our strategy plan clearly is built with certain rules. We set the rules at the start of the game and we do not change during the game. So, the next update will occur clearly with the next strategy presentation. What we presented is a mix of tools. You know that we have a dividend policy that is a mix composed by a fixed and the variable element. We designed the buyback and we announced in March of this year that we would have a progress of this buyback in line with the price preference. This is actually what happened during this quarter. So, we do not expect to change the rules and, therefore, to change additionally these terms. About the calculation, just to give you some clarity, we announced last March that, at $80, we would have between €6 billion to €7 billion of free cash flow. By now moving this €6 billion to €7 billion, that was actually at €6.4 billion at the time, to the $90 that was the minimum where we do not change the distribution of buybacks, we would have reached almost €7.7 billion. Now you know that we have announced that our free cash flow will be €12 billion. It means that we have €4.2 billion, €4.3 billion of free cash flow. Multiplying this by 30% brings you to the €1.3 billion increase, that is the sum that we added to the original €1.1 billion. So, this is the drivers of the calculation that we have applied.

On the second question about the 7% reduction, honestly, we can't answer to this question because there are a lot of different points at least, and so we cannot talk about the implementation. Why? Because we don't know. So, it's something that we have to wait, the ministry, and especially [indiscernible]. So, the impact on us, you didn't ask the possible impact of this reduction. Clearly, we have a flexibility. Why? Because we send to Italy LNGs and production that we can diverge, we can change destination. So if there is a reduction of 7% of gas, we have the possibility and flexibility to sell this gas somewhere else.

The next question is from Martijn Rats of Morgan Stanley.

I've got two questions, if I may. First of all, would it be possible for you to briefly summarize the Russia risk? As in, if Russian gas volumes to Europe, including Italy, were to go to zero, how does that actually cascade through the company? I think there's a sort of broad amount of sort of misunderstanding about that? And therefore, I think it would be useful if you could sort of briefly explain it to us all. And secondly, the Baleine discovery, it sounds quite large. I was wondering if you could say a few words about it in terms of timelines or plans. It looks promising.

The first question will be answered by Christian. The second one by Guido Brusco that I hope is online.

On Russia, let me say, first of all, we are, as you know, currently receiving around 27 million cubic per day of flows. And we can confirm that, even at that flow, we can, let's say, confirm the guidance of €1.2 billion EBIT by the end of the year. Then if the flows would actually reduce substantially from that amount, clearly, the impact will depend on a lot of variables – price environment, regulatory framework, and when actually this will happen. But what I can tell you, though, is that within the current price scenario, in the event of a complete shut off of the Russian supply from winter onwards, we will still expect to be at least free cash flow positive in 2022.

Guido? You can talk a little bit, elaborate on Baleine.

Baleine is clearly a world class discovery, very good reservoir, high quality potential to produce up to 12,000 barrels per day. We have already ongoing an early phase, which we are planning to start up in the first half of next year with production up to 15,000 barrels. And, clearly, this appraisal campaign is setting the scene also for the second phase and its fulfilled exploitation which we are planning at the moment to take an FID by 2023 first half and with a target startup in late 2025.

You dropped off very briefly. So just to clarify, did you say the production potential of the field was 12,000 barrels per day. That sounds low.

No, no, no, no.

No, no. Each well has a potential of up to at least 12,000 barrels, which is the one we tested right now in this well. This is just to demonstrate and confirm the quality of the reservoir. The first phase is a very early phase, which we are doing with vessel, which we have in our fleet. But, clearly, the fulfilled is something which will go well beyond 120,000, if not 150,000 barrels per day, the fulfilled.

The next question is from Henri Patricot of UBS.

Two questions, please. To the first one, I was hoping you could share your views on the refining outlook for the rest of the year. I see you've used that reference margin of [indiscernible]. But we've seen quite a lot of volatility in the last two or three weeks, sharp correction, seems to be improving in the past weeks. How do you see the risk around at $6 per barrel and, in particular, do you see any signs of demand destruction in your own retail network? And then secondly, I want to come back to the question of the gas supply and will these agreements that you've created last few months and whether there is room to accelerate some of this increased supply. in particular, in Algeria, you continue to have some discoveries on the upstream side. So, could this increase [indiscernible] brought forward to some extent.

About the refining margin, of course, the so high volatility is due to the current contest that is – has two main driver. First one is the very high price of gas and the second is the war with – the lack of availability of Russian product in the European market. What we expect in the next half of the year is that the gas price will remain very high and could affect the margin. And against this, as we told before, we reacted with this very strong reduction of the gas consumption. And secondly, we expect a certain decline of the crack spread of product, gas, oil and gasoline. But even if – the demand of gas oil will remain stronger also in the third and the fourth quarter. So, at the end, we expected that, in the second half, the margin of refining could be around $5, $6 per barrel average –yearly average. It means that we continue to be quite robust also in the second half, of course, not as the second quarter, but in any case, a very positive refining result.

Thank you for the question about the gas supply. We take the opportunity to give him a bit larger view on the model that we were changing starting seven, eight years ago. And so, the two models – one is to buy gas from a third party. So, Russia. And, B, on the value chain and sell our gas. So, our equity gas, gas for which we run exploration, development and production. So, now we are setting also the contract that we signed that were – that concerned the destination were just linked to our equity gas, the development we're running in the countries. So, the question is how we can accelerate it. So, clearly, we set some program in term of three plus three plus three. I talked about just about Algeria. And now, recently, additional 4 billion. In these quantities, for Algeria, we are considering our equity gas plus SONATRACH equity gas and development that are ongoing. How we can accelerate? We have discovered more. And Algeria is very – not easy to discover. But once you discover, it's very easy to tie in because there is a strong network – pipeline networks and plans. So, recently, we discovered gas in Nigeria. We tie in more than four wells. We are working our concession, but we are also helping – working very well in good coordination with SONATRACH. So, could be possible to accelerate and increase this quantity. It's something that we're going to see over the next month. The same kind of concept we can apply it for Egypt, for example. Clearly, Congo is more limited because we are building the LNG. But I think that this is likely to happen because we have a lot of recent discoveries. So, that can happen. I cannot tell you now possible details. Maybe we can disclose in the next month.

The next question is from Massimo Bonisoli of Equita.

Two questions, both on gas. The first, with reference on pages 13 in the annex of your presentation, if you can give us some color on the commitment on your gas customers. Can we assume the main commitments are mainly for the B2B and Plenitude stream? And the second question regarding the gas derivatives and the margin call, can you update us on the effects on net working capital, which was supposed to draw about €1 billion in 2022 according to Q1 conference call?

The first for Christian and Stefano and then Francesco.

On the commitment of the gas sales, let's say, yes, most of our commitments are basically with our own consumption. So, let's say, for our Plenitude, for our Eni Power business and for our refining and Versalis business. So this represents the bulk of our commitment. Then we have also commitments coming from long-term agreements that we signed with shippers a few years ago and that are still in place that will, let's say, fade away in the next years. And then, we have some commitment with the industrial customer, B2B customer, as we call them, but those are, let's say, a minority in that flowchart.

Massimo, if I can add, I can only add that 100% of our gas supply for Italy and France comes from Christian. So, we have the security of supply on this case.

About the working capital, you'll remember last year that we have this, let's say, positive contribution from, what's called, the cascade of derivatives, particularly on power. This clearly has impact negatively this year. It will move during the year. We expect to have a negative impact related to that of €1 billion, clearly included in our estimate of free cash flow, in particular on the power, but there will be also our recovery, partial recovery on other derivatives that are cascading the opposite sense in the range of €300 million, €400 million. So, that is the overall impact. In terms of margin calls, I can tell you that we are well covered. We have just at the current level of pricing, something in the range of €2 billion, €2.2 billion of cash absorbed, but you know that we have also €20 billion of liquidity capacity. So, we are quite protected from any potential jump.

The next question is from Bertrand Hodee of Kepler Cheuvreux.

I wanted to come back on the Gazprom related financial risk. I am a bit confused. Claudio, in your preliminary remarks, you stated that Eni can fully meet all of its natural gas contractual obligation, even with zero Russian gas on a go forward basis and without any additional costs. And then, when Martijn asked the question on the potential shut off of Russian gas and the potential impact on Eni, it looks like there could be an important financial impact. So, hopefully, can you clarify please?

I'm clarifying because there are clearly two different level. The one that was mentioned in the presentation, and Claudio stated, is related to the physical obligations. So, we are able substantially to cover, in case of interruption of Russian gas, our commitment with no Russia additional contribution with existing cost because, substantially, what we have done since the beginning of this year, as soon as we have seen the start of the crisis, we substantially, let's say, create flexibility along this chain. The flexibility is not to take additional commitment. It's to look for additional source of supply. And on the other side, also from the financial point of view in terms of derivatives, to interrupt coverage. So derivatives, let's say, buying in terms of these gas sales. Actually, there were some of these past coverage. They were taken before the start of the crisis. And this is, let's say, the original impact that Christian has mentioned. So, there will be an impact from the financial point of view related just on to the winding of this derivative, but will be, let's say, relatively mild taking into account that we have already substantially stopped and maintain as much as flexibility as possible.

Can you quantify those potential, let's say, worst case scenarios of winding down early those hedges and derivatives?

Clearly, as we said, depends from many things. So depends when it will occur. It will be occur – and with this level of pricing. But at the end of the day, we are referring to few other millions.

I think it was important to clarify because I saw a Reuters headline that in case of disruption, you will stay free cash flow positive at the group level. So I think…

No, no, no, no.

…that you were free cash flow positive…

Christian was referring to the GGP level.

No, no. I'm not saying that I understood that. What I'm saying is that…

No, no, no.

It is the Reuters headline I'm saying.

Thank you to precise that because if we are just free cash flow at the group level, it's a serious problem. So thank you very much for the question, so we have the possibility to clarify.

The next question is Giacomo Romeo of Jefferies.

Just two remaining, just follow-ups really. The first one is on the buyback. Because you alluded to the fact that you could review your distribution at 3Q, but my understanding is that your – the AGM authorization is for buybacks up to €2.5 billion. So just want to understand how easy can these be moved and whether we could see a more material upside to the €2.5 billion authorization you currently have. The second is on the windfall tax in Italy. What's your perception of the risk of this windfall tax being extended until a longer period of time and potentially change in order to address a larger taxable base? The question really comes from the fact that the Italian government has talked about a much larger financial impact from this windfall tax than what it looks like it will be based on your comments and some of the other Italian energy companies' comments. So I just want you to understand sort of your view about potential downside risk on the windfall tax as we head into the winter.

First of all, about the buyback, Francesco again. You are correct, we have €2.4 billion so far, but are limited in terms of authorization of €2.5 billion. So still, we have room, but it is €100 million. So in October, we will update the scenario and the performance and, therefore, there will be potentially this top up in term of buy back. On about the windfall task, first of all, we have to think that, clearly, we have worked very hard actually to provide security for the country. So, I think that, if you look at the overall performance of Eni in 2022, first of all, in managing a risk that is huge, in finding new source of supply that ensures Italy, in particular, to have, let's say, a better condition so far versus other European countries in terms of security of supply. For example, you can see also from the alert level, that is still at the level 1 in the country. We were able to fulfill our storage well in advance, as was last year, practically absorbing €1.6 billion of cash in this quarter. And we intervened to support Saipem very recently with a capital raising. So, I think that we made a very large and diffused the activity that is going more than just on a windfall tax. We think that any kind of taxes should be in any case designed in a proportionate way, in a way that is at least directly linked to profit that is most effective and most, let's say, clear way also for the investors.

Gentlemen, that was the last question.

Okay, thank you very much.

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