Eni S.p.A. (E) Q3 2022 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to Eni's 2022 Third Quarter Results Conference Call. For the duration of the call, you will be in listen-only mode. [Operator Instructions]. The call will be hosted by Mr. Francesco Gattei, Chief Executive Officer. I am now handing you over to your host to begin today's conference. Thank you.

Okay. Thank you. Good afternoon. Welcome to Eni Third Quarter and 9 Months 2022 Results Conference Call. The world and the energy markets, in particular, continue to be impacted by very significant geopolitical events, uncertain economic conditions and volatility. This would be challenging upfront, but we are also continuing to deal with the legacy of the pandemic on supply chains, the long duration energy transition and the deep cyclical legacy of 7, 8 years of underinvestment. In that context, we are delighted with the -- how Eni is delivering on its strategic and financial objectives, while managing the evident risks. In the last quarter, oil price fell from the level since in the previous 2 quarters. The oil market has pulled back and has traded mostly in the $90, $100 barrel range with a number of important but often competing factors such as the pushing up of production towards the ceiling of capacity, the impending EU ban on Russian imports, the U.S. strategic reserve release and the recent OPEC Plus decision on production cut. On the demand side, there is a risk of slowdown or recession, amid inflation and rising interest rates. But against that Chinese demand will likely rebound in 2023. And not forgetting, OECD commercial inventories are at the historical low. Natural gas prices are key areas of attention among investors, rose on a quarter-to-quarter basis, and they have been even more volatile than oil. It is encouraging that European gas storage has been refilled by the winter '22/'23, will be weather-dependent and influenced by consumption effect, while also impacted by any remaining Russian supply. Recent price softness. I mean, the warm weather and high storage in a typical shoulder month cannot be the guidance to where the winter may trade. The third quarter refining margin fell from the record levels of the second quarter, but was still robust, helped by strong middle distillates, albeit negatively impacted by high energy costs. In the chemical space, energy and feedstock costs have been a significant headwind and the slowing in end user demand is a warning of the potential for a wider slowdown. In the last quarter, we have made significant strategic advances across all businesses, continue to deliver positive results. Third quarter 2022 demonstrated, once again, Eni strong operating and financial characteristics. Net income rose around 160% year-on-year and was in line with the second quarter despite a lower crude oil price and the shortfall in refining margins. This reflect the E&P doing a good job catering this scenario, while GGP successfully managed another highly volatile and complex quarter. In Energy Evolution results in R&M were excellent despite the weaker margin. Our net result was entirely produced from the international business as the Italian activities registered a negative performance in the third quarter and in the first 9 months. Cash flow from operation was also excellent at €5.5 billion, up 64% year-on-year. This cash inflow allow us to manage liquidity in the business at a time of considerable claims on working capital, fund our investment plans, remunerate our investor and continue to strengthen our balance sheet. Turning to our 2 main business segments in a bit more detail. Firstly, on Natural Resources. Our E&P earnings resulted from attractive leverage to oil prices and cost control and came despite the shortfall against expected production in the quarter arising out of unplanned downtime at Kashagan, as it came out of turnaround, higher impact from force majeure mainly related to Nigeria and Norway lower contribution. On the gas price, it should be kept in mind that our leverage to the North European gas op is primarily in bar below the EBIT line. Furthermore, from August, associated income also included our new satellite, Azule in Angola, also reported below the EBIT line. GGP results were generated in a high gas price environment, but one that continues to be very challenging given its unpredictability and volatility. In third quarter, we were able to manage market risk and delivered good results through gas and LNG portfolio optimization. Meanwhile, we also ensure security of supply for our Italian customers. I just want to spend a few moments on Azule. In August, ENI and BP formed a 50-50 joint venture that combines the legacy businesses of both companies in Angola. Azule is now the largest private operator in the country in terms of equity production. Indeed, it has around 850 employees, most of them -- most of whom are Angola nationals. It operates 4 FPSOs in 3 blocks, which, along with assets operated by others, produce over 200,000 barrels per day, expected to grow at 50% a year to over 250,000 barrels per day. Azule is the second largest equity owner in Angola LNG and the leader of the new gas consortium that is tasked with finding and developing new known associated gas supply. Indeed, the exploration is a key upside for Azule, with a number of exciting oiling and increasingly gas prospect in its plan. It is expected to be self-financing and has a €2.5 billion loan facilities in place. In addition to funding its production growth and exploration, it will also feedback an attractive dividend stream to its 2 shareholders. Cost synergies and operating efficiency, combined with the new growth opportunity arising from a deep operational focus aligned to an appropriate capital structure, precisely demonstrates what Eni is seeking to achieve with its satellite strategy. Now on to Energy Evolution. Refining & Marketing reported another excellent quarter. It is worth recording again that while the macro environment has been supportive, this result has again been achieved through dynamic management of energy cost and feedstock and the safe and reliable running of our refineries. I would also like to highlight the contribution from ADNOC to our adjusted net profit and cash through dividend in the quarter. Versalis has had a challenging period, reflecting the well-understood trends in the chemical industry. Live feedstock and energy costs that are more difficult to mitigate than in refining plus weaker demand, which is both seasonal and a reflection of slowing global industrial activity. While fourth quarter will see a rise in turnaround activity as we address maintenance delayed from earlier in the year, and we are cautioned in terms of Versalis, we, nevertheless, are comfortable in raising our downstream guidance for once more. I want to briefly update on an initiative that represents another example of both our shift to a Zero Carbon model and also the use of the satellite structure to unlock value, accelerating growth, providing a deeper operational focus and helping to tailor capital allocation. The Sustainable Mobility business represents Eni commitment to making the mobility of today and tomorrow increasingly sustainable through proprietary technology and strategic agreements. The incorporation of Sustainable Mobility is gaining momentum, and we anticipate being able to talk about it in detail in early 2023. We have made some notable progress just recently worth highlighting. We have taken delivery at our Gela biorefinery, the first cargo vegetable oil producer at our agri hub in Kenya. This is the beginning of our innovative strategy of vertical integration of sustainable feedstock that does not compete with the food supply chain. Also of note, we have now taken delivery of our last cargo of palm oil in line with the commitment to be palm oil-free by 2023. Eni is a leader in green refining, having converted our Venetian Gela plants to become a biorefinery using Eni Ecofining technology. Our capacity will progressively increase during the next few years, and we recently announced the launch of a feasibility study for a new third 0.5 million ton per year plant to be built at our Livorno site. Planning to the adjusted pro forma EBITDA exceeded €0.5 billion in the 9-month 2022, with a strong year-on-year progression, thanks to the continued growth in renewables and the retail performance, supported by strong sales in solar, distributed generation and energy efficient services. This was accomplished despite the current challenging market context that has created significant issues for the wider European utility space, thus confirming the value and the resilience supply to the integrated model. Planning to the remaining key strategic component of Eni decarbonization plan and continue to execute both operationally and financially. During the quarter, we further developed the renewable utility scale business, with installed capacity at 1.8 gigawatt, set to reach over 2 gigawatt by the end of the year. Pipeline expansion continued through the partnership with Infrastrutture SpA that added new solar and wind opportunities for growth. Finally, also the Vårgrønn joint venture with HitecVision was expanded to incorporate the U.K. Dogger Bank project, creating the platform for all the offshore wind activities in Northern Europe markets. In distributed solar generation, we reached more than 13,000 plants in operation, mainly in Italy, where the company has the market leader position. Plenitude aims at continued expansion of this business enlarging its reach to other European countries. In e-mobility, Plenitude was selected by the European Commission for the construction of one of the largest high-speed charging network in Europe, along key transport corridors and major cities. In terms of operating e-mobility KPIs, installed charging points were close to 10,000 at the end of September, in line to deliver on the 12,000 target by year-end. To summarize, all Plenitude operating targets are on track and also the 2022 EBITDA guidance above the €600 million is confirmed. So let's focus in a bit more detail on group financial and cash performance. Our adjusted cash flow from operations in the third quarter was €5.5 billion before the effect of working capital and unusual items. This corresponded to €16.30 billion for the 9 months. With that founded the €2.5 billion of working capital outflow mainly related to building gas inventories and managing commercial commitment to our gas customers. In the first 9 months of 2022, we have invested €5.5 billion in organic CapEx, 35% up year-on-year. On an underlying U.S. dollar basis, this is in line with our strict capital discipline and the guidance for 2022. We have funded our dividend and our share buyback program, of which we expect to complete the €2.4 billion commitment by the end of the year. At the current share price, our 2022 buyback and dividend combined for a highly competitive yield of almost 13%. And for reference, our distribution equates to around 27% of our projected cash flow from operation at $100 barrel. In addition, we have also made some selective inorganic investment. In the past quarter, we purchased a Tango Floating LNG to support the fast track on LNG project. We also agreed to purchase assets in Algeria, enhancing our in-country natural gas position. Plenitude continued to develop its renewable portfolio, entering a new partnership with Infrastrutture SpA to develop wind and solar projects in Spain and Italy. Moreover, in early 2022, we contribute to the successful funding round at CFS, the MIT spin-out that we helped to establish in 2017 and the targets commercially relevant net energy from Fusion with a key milestone plan from 2025. Other cash outflow includes the interim payment on the Italian windfall tax, and we are scheduled to pay the remaining balance by the end of November. Also, as a result of it, in the first 9 months, Italian activities of the group have lost more than €1 billion. With specific reference to Eni S.p.A., Italian activities recorded €21 billion of accumulated losses since 2014. You can find additional details in the appendix to this presentation. Turning now to our updated guidance for 2022. Our new guidance for 2022 oil and gas production include effect of the various force majeure. We have experienced this year, most notably in Nigeria, the updated guidance for Norway and planned downtime at Kashagan. Our raised guidance for GGP of €1.8 billion reflects the excellent third quarter results, but also incorporates lower Russian volumes than previously planned and a weaker market environment as experienced in October. Our raised downstream pro forma EBIT guidance of €2.5 billion is despite a challenging outlook for chemicals. In aggregate terms, we expect to generate at least the same amount of cash flow at a lower oil price assumption than we previously made, confirming the strong performance of the company that has been a prevailing theme in 2022. We expect CapEx to be in line with the guidance of €8.3 billion we provided at the second quarter, which is, in turn, in line with our guidance provided at the beginning of the year, adjusted for foreign exchange effect. Our year-end leverage is now anticipated to be higher, mainly on the expectation that we complete the €2.4 billion buyback by year-end on account of the payment of the final installment of the windfall tax in November, and payments related to the completion of announced transaction and CapEx phasing. With that, together with Eni top management, we are now ready to answer your questions.

[Operator Instructions]. The first question comes from Irene Himona of Societe Generale.

My first question on E&P. You referred Francesco to E&P cost controls. I wonder if you can talk around any specific cost reductions, either achieved or targeted? And then secondly, on Kashagan, can you please update us on where third quarter production was and where is it now in October, please?

Thank you, Irene. I now leave the floor to Guido Brusco for these 2 questions.

On cost inflation, we are looking at the upstream capital cost in that CCI that showed an increase of 7.2% over the first half of 2022, and it's projected to be around 10% in 2022. So indeed, clearly, there is a trend of an upward trend of cost, which is linked to the rising energy and commodity prices. We are managing those costs. As we said also in our Capital Market Day, the -- most of our contracts were locked in and so we couldn't see this year and also next year, most of them were already awarded. We are also, of course, making efficiencies into our company and our processes and implementing some contracting strategies to control escalation and the escalation of cost, introducing also some target cost approach for EPC contract, aggregation of volumes and expansion of existing contracts where prices were more trouble. As far as concern Kashagan, according to the latest information we received by the operator, the restart -- the complete restart at the moment is flowing at 50% of its capacity, so about 200,000 barrels per day. The complete restore of the production should be by the month of November.

The next question is from Massimo Bonisoli of Equita.

Good afternoon, and thank you for your presentation. I would like to have some more color on the exceptional performance of the GGP division. It is quite strong. So if you can help us in understanding that kind of performance? The second question is an update on contractual or commitment exposure on gas with industrial or utilities clients in Italy. And do you also have a number for matured receivable for gas, for example, press in Italy were reporting about €300 million only for Ilva?

I will leave now the answer to Cristian Signoretto for the GGP. About the receivable, I can answer later.

Okay. So thanks for the question. So the Q4 -- the Q3, for the overall gas and LNG business been very strong, as you said, on the back of a very robust and volatile market, I mean we have seen prices starting from €150 per megawatt hour getting up to €350 and then going back down to €170. But apart from that also we have seen huge spreads around different markets between LNG and gas, between, let's say, time, so prompt delivery vis-a-vis forward delivery. So there has been a very, let's say, I would say, imperfect and volatile environment. And we were able to take advantage clearly of the flexibility that we have in our asset base, both in gas and LNG and basically going after all this arbitrages in time, geographical or commodities arbitrages in order to, let's say, close the opportunities into the market. So I think this is the major thing that actually underpinned the performance of the Q3 result in GGP.

About the outstanding receivable, first of all, it is -- what we see so far is, let's say, regular payment. You saw also from the performance in the quarter related to the working capital that was actually positive. We were able to, let's say, recover around €500 million. Now the overall working capital clearly includes all -- a lot of other elements is in the range of €2.5 billion. And we actually -- we expect that we will close the year by recovering most of that substantially closing the overall amount in the range of €500 million, €600 million. So that is the general trend. Clearly, you are referring to a major real estate customers. Sofianna that there was, let's say, rescheduling in the payment that was agreed by both parties. And clearly, this is one of the activities that we are monitoring for the relevance of the supply. And we have a continuous dialogue to support, let's say, the capability for the, let's say, the commitment -- for having the commitment concluded. So -- but in many cases, just to conclude this, the trend that we see so far is not alarming and confirming, let's say, a relatively strength in the system related to this issue.

Next question is from Biraj Borkhataria of RBC.

The first one is on exploration. The 630 million barrels discovered this year is very significant. And this has clearly been a key strength for Eni historically and where you've created quite a lot of value. Given the current environment, I would have thought there's quite a strong business case to increase the exploration budget into 2023. So I was wondering if you could talk a little bit about what you're doing there into 2023, what's the split of front tier versus infrastructure led and so on? And then the second question is just going back to cash again. My understanding is there are some issues in terms of the capacity of CPC and the ability to flow at full rate. So I was wondering, conceptually, if Kashagan ramps up back to full capacity, but CPC is not able to flow full -- at full capacity itself, should we just assume Kashagan gets pro rata down in line with the other projects in Kazakhstan? Or how does that work exactly?

Okay. I will leave the first question to Aldo Napolitano that is with of our exploration activity and then Guido for the Kashagan and CPC.

Yes, about exploration. So thank you for the question. Yes, we think we have quite a good backlog of projects to be drilled also this final part of the year and the next year. So we'll continue to invest on exploration with a mix of some near-field exploration and selected opportunities that can have a high impact. And so while at the same time, I would say we are keeping our discipline budget-wise. We are trying to take all the opportunities that we see to have also high impact wells to be included in our schedule. So during this final part of the year, we will drill potentially high impact wells in Egypt, in Cyprus, and very soon, we will drill also in Congo. And in the first half of next year, we have plans for drilling again in Egypt, in offshore Egypt, in Mozambique, in Ivory Coast, in Congo again, in the Emirates, in Mexico and Morocco. All these are wells that potentially can be of -- can bring a significant result.

Okay. Now on CPC.

Yes. On CPC, based on the information we received from the CPC operator, the work for reestablishing 1 of the 2 voids that were out of service are almost completed. So we do expect that when Kashagan will be back on stream, the evacuation capacity will be fully established.

And in November, it's -- the capacity is not there, do all the projects get prorated down equally into the pipeline?

There are several -- there are some additional export food that we are assessing as D&I as I'm sure also other operators are assessing to cover eventually a shortfall in the capacity.

The next question is from Alessandro Pozzi of Mediobanca.

The first one on the new upstream production guidance, I think in Q4 implies quite a bit of a step-up from Q3, maybe 1.7 million. And of course, I think there's probably some of the unplanned outages coming back, but I think you have a number of startups. So I'm thinking about it back in 2023 as well, Marine in Congo. And so I was wondering, as we go into 2023, what sort of -- I know it's early days for production guidance for 2023. But I think you also have a target of increasing production by 3% every year. So if I can maybe get a sense of whether the 1.7 million potential in Q4 could be maintained or increased in 2023? And maybe give us a sense of what the additional production from the new developments over the next few months can bring to the table basically? My second question is on Algeria. And I was wondering if we can have an update on the 6 bcm of additional gas that we can get before the 2023? And I was wondering whether this is more front loaded or back loaded in terms of timing throughout the year? The final question on GGP. I'm seeing like sales down quite a lot Q-on-Q, but also year-on-year. And I was wondering the reason behind the drop in sales in GGP?

Okay. I think that we -- on production, we can, let's say, give the floor to Guido, then for Algeria and for the demand or sales percentage, I come back to Cristian Signoretto.

For production, clearly, in this last 2 months, we will have a significant contribution from the restoration of Kashagan. And also from one of -- the other assets we have in Kazakhstan, which is Karachaganak, which is still to recover from the turnaround -- from the last turnaround. And this will be the biggest ticket. Then we have the ramp-up in Coral. As you know, we have produced the first LNG in Coral and we are completing the ramp-up to achieve the first cargo that is forthcoming. This is the second contribution. The third contribution is coming from the ramp-up in Mexico, and then there are other countries where we have wells coming from production optimization, including Algeria, where we have a significant activity of course. And this will set us in, of course, much better position for a strong beginning of 2023.

I think your kind of target is to grow by 3% over the business plan. I mean, is it going to be consistent with that growth, the 2023 production?

On 2023, of course, we'll elaborate more in the Capital Market Day, but we are foreseeing an increase of the production and the CAGR, which is in excess of 3.5%. That's -- but we'll talk more on that in our forthcoming Capital Market Day.

The next question is from, I apologize for that.

There is a second part of the question related to the sales of our gas and power division.

Yes, Alessandro, so on Algeria, so actually, the 6 bcm increase in supply is already happening in the sense that starting from April when we signed the agreement in Algeria, we already received, as we speak, around 2.5 bcm extra volumes on top of what was contracted before the crisis, so to speak. And this is going to continue until, let's say, the winter and also going forward. So I'd say it's happening and difficult to say whether this is going to be completely, let's say, even or maybe with some peaks, but this is already undergoing at a very good stage. On the sales drop, well, I think we have to distinguish that. Because, I mean, on the gas sales drop in Europe, especially, this has been caused practically by the -- on the deliveries of Gazprom. So starting from June, as you know, we have suffered a reduction of deliveries from Russia. And this actually turned out to clearly less sales to the market. And actually, a bit of a reshape of our sales activities in the sense that we have to pull gas from outside Europe in order to increase our, let's say, sales in Italy. And so you see probably some changes in the overall European landscape, but that is because we had to readjust our overall, let's say, sales footprint to take into consideration this drop in the Russian flows. On the LNG stat, it is mostly related to under deliveries that we have suffered from few sources of our, let's say, portfolio -- third-party or equity portfolio that it is and that explains the reduction in the Q3.

Okay. And just going back to Algeria, what would be the next, let's say, step up in imports for Algeria?

Well, the next step up -- actually, the first step up will start from actually October because I mean, we have increased our ACQ of the long-term contract. So this is the next step up. And then more will come during the winter and next spring.

The next question is from Martijn Rats of Morgan Stanley.

A lot of very relevant questions have already been asked, but I wanted to ask 2 additional things. The EU import embargo on Russian oil is getting closer for crude in December, for products in February. And I was wondering if you had any thoughts on how that might impact -- well, not only the global oil market, but particularly the European markets and in particular, for diesel? You're probably closer to it than almost anybody, so if you have some views that you could share, that would be greatly appreciated. And then, secondly, very briefly on the windfall. Also a topic been discussed many, many times already. But if the second payment is in November, we're all wondering what lies sort of after that? And I would expect difficult to know that one as well. But again, you're closer to it than many of us. So I was wondering what your expectations were sort of going into 2023? And if you have a bit of an inkling what the new government might do?

About the -- I will reply on the windfall, and then I will leave to Giuseppe Ricci the answer related to the diesel and to the ban of EU. Windfall, you know that clearly the tax that was conceived so far as, let's say, lacked to reach this target in terms of cash that they were supposed to raise. Many of the players decided not to pay or in many case, they created, they have their own, let's say -- they appealed. I think that still there is some recourse ongoing. There is an appeal that is expected to be evaluated in early November. That could be a first, let's say, check on the taxes. What is now different from what happened before is that Europe has built a framework that is, let's say, a guidance for this kind of contribution. It is more balanced, I think, because it's related to profit, not to build as of VAT follows. It is calculated on a longer period, 4 years instead of 7 months. Comparison includes an element of buffer that is a 20%, let's say, uplift on the average level of results or profit that you had in that 4 years, and therefore, is, let's say, much more transparent, clear, could be better assessed also from the market point of view and doesn't require adjustment correction interpretations. So I think that is a good solution, a good proposal to start to evaluate a mechanism for this kind of contribution. I think this is the only thing that we can say for the time being and that we will see what is going on. On the EU import ban, now Giuseppe Ricci is connected.

Thanks, Francesco. As you know, Russia was the first importer in Europe of many products, mainly diesel and naphtha. Starting from the start of the war, this flow reduced dramatically, and we have seen an increase of margin, refining margin and the price of -- and the crack spread of diesel. We are seeing, also in the summer, a slight reduction of the margin because of the arrival of some diesel from outside Europe. But now, the crack spread of diesel is still increasing. And what we expect when officially we start the ban of Russian crudes, Russian products, this size could increase and could sustain the refining margin also in -- during the winter. For this reason, we have increased also our guidance, producing some sensibility with higher margin and with the expectation to arrive at the end of the year up to €2.5 billion for the overall down statement.

The next question is from Oswald Clint of Bernstein.

Yes. Just on the overall initiatives here to derisk Russian gas, so 20 billion cubic meters, you're telling us you're 50% de-risked now going into winter. I think the plan was to completely do that by 2025. So is that still the long stop date on that? Or can we think about derisking over a shorter time period? But really, the question is, is there a -- or can you quantify maybe the cost drag that this has involved? I see LNG does come from Angola. It's reloaded on to smaller ships and Spanish terminals. And then to make it compatible coming into Liguria. So there's obviously some cost element here to taking out Russian gas. I don't know if you could speak around that perhaps. And then, secondly, also on gas, more with your evolving relationship with ADNOC, and some of the recent commentary was around worldwide gas supplies out of the Emirates. I'm just wondering with fields like Ghasha, which are quite big, are you or could you get involved with LNG exports coming out of the Emirates?

Okay. On the first question, Cristian, the second one, Guido Brusco.

So thanks for the question. On the substitution of Russian gas, I think, as you rightly said, we are targeting to substitute 50% of it, by this winter, then 80% next one and then 100% by 2025. When it comes to, let's say, the implication on the cost side, I mean, I'd like to take maybe a different perspective. So what's going to happen actually this reshaping of the portfolio is going to push much faster our substitution of third-party gas with equity gas because we are basically importing more of our equity gas or equity LNG actually in Italy. And this is going to actually deliver more value than we used to get from importing Russian gas just because, I mean, we are going to integrate, along the value chain, all the profits. Clearly, when I'm talking about value chain, it means that it's going to span between upstream and GGP, but in the end, it's in the pockets of Eni. So I would not be worried about that. On the operation that you mentioned, this actually was actually accretive in terms of profit because, as you probably know, there has been huge spreads between Spanish hub and Italian hub just because, I mean, Spain is full of gas capacity and LNG is traded there at a price below what is the price in Italy. And so actually, that operation allowed us to basically use the Panigale terminal, which is probably one of the cheapest now in Europe because all the other terminals are actually asking for higher price in order to actually minimize cost than actually paying more for that. Thank you.

Guido?

Yes. As far as concern the project of Ghasha, the gas initially produced will be devoted to the domestic market. However, the construction of this hub will enable future exploration, other discovery done in the area to be tied in and increase the base of resources of this initial gas.

The next question is from Bertrand Hodee of Kepler Cheuvreux.

Yes. Two, if I may. Can you update us on your hedging policy for upstream natural gas production? Can you remind us of the hedges you had in place for 2022 volumes or pricing? And did the GGP benefited from that at the expense of the upstream division? And do you have hedges in place for 2023 or any color you can give on this topic? And my second question would be a very quick one. Just for my curiosity, does Eni has made an appeal over the -- on the windfall taxes or -- that was computed by the previous Italian government, have you made an appeal on that?

Yes. About the windfall tax, yes, we appealed, and therefore, clearly, we are waiting. It takes time. But as I mentioned, there is this first milestone that could occur in the beginning of November related to the so-called assessment that is made by other players. In terms of hedging, first of all, there is no possibility that GGP will benefit of an hedging related to an upstream because it is not the counterpart of hedging. So GGP is not a financial institution that is, let's say, taking position opposite to E&P. We have -- generally speaking, in terms of E&P, we have a smaller hedging sometimes. So that is what happened even this year, but it is just to stabilize the return in certain areas in terms of, let's say, cost in order to be sure that this contributes positively. For next year, we don't have any hedge on E&P.

And for curiosity also, I noticed that you've restated your Q2 natural gas price realization in upstream. It was previously reported last quarter at $9.1 per BTU. And now it is just $7.6. Any color on that? Just a technical question, and if you don't have the answer, I may reach out to Investor Relations.

I think this could be -- let's say, we will check with probably Jon Rigby. We will give you the answer. We will give you back the details in any case, nothing related to what we are referring to. The Investor Relations team will provide an answer. In terms of just taking this opportunity to make a correction related to the working capital. In the last quarter of this year, we foresee a few hundred millions of working observation because of some upstream abandoning cost impact. The remaining part of the business is instead, let's say, recovering working capital because it's a typical seasonal activity.

The next question is from Henri Patricot of UBS.

Two questions, please. The first one, a follow-up on GGP because your full year guidance, €1.8 billion implies negative contribution in the fourth quarter. So you could expand on what is driving that weakness in the fourth quarter? And then second question is on Cyprus, and your recent gas discovery. Can you give us a sense of the time and the next steps for your Cyprus discoveries? And perhaps you can give us a sense of how quickly you could bring that gas to market?

Cristian, and then Guido.

So on the guidance for final year, so first of all, this guidance take into consideration vis-a-vis the previous one, actually a lower flow of Russian volumes. When we, let's say, confirm the guidance in July, we were receiving around 30 million cubic meter per day. Now we are receiving something in the range of 20 million cubic meter per day. So that actually has an impact clearly on the overall results. And also that guidance for final year also take into consideration the fact that October is already -- almost closing, and we have seen that the market has expressed the price environment clearly much different than what we have discussed before in Q3. And I would say on top of that, we are also anticipating some of the headwinds coming from the force majeure, which has been called on Nigeria, which will affect also our LNG availability. So all in all, we foresee at Q4 in the range of minus 200. Clearly, as Francesco was saying during the first part of the call, if the market will prove to be much more volatile and much more sensible, clearly, we are there with our, let's say, flexibility and optionality to capture the value that will be available.

Guido, on Cyprus?

As far as concerned, Cyprus, as you know, after the discovery well, we immediately started the -- an appraisal, which is still ongoing. So once we have completed the assessment, we'll come up with a development concept. Of course, at the moment, we are assessing several options, which include onshore and offshore developments.

Mr. Gattei. That was the last question, sir.

Yes. No, I take an opportunity to complete the answer to the question related to the gas realization prices. These prices were restated because now taking into account before where, let's say, excluding or including the affiliates results, including now, they are excluded. So if there is also not a reference in the table describing and you can see the reason for this, let's say, discrepancy or changes that we introduced.

Thank you. Sir, at this time, there are no questions registered.

Okay. Thank you for all the attendance of this conference. If you have any additional questions, please follow up with the Investor Relations team. And lastly, we expect to report our fourth quarter results in the second half of February, alongside an in-person capital market event, and more detail will be available in due course. I would like to thank you, and I wish everyone a wonderful weekend. Thank you.

Ladies and gentlemen, thank you for participating in the Eni Conference Call. You may disconnect your telephones.