Eni takes steps to cut operation costs by 1.4bn euros in 2020

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By Ikenna Omeje

Italian energy giant, Eni, has taken step to cut its operation costs by 1.4 billion euros this year, because of the economic challenges occasioned by Covid-19 global pandemic.

This was part of the consolidated results for the second quarter and first half of 2020 (not subject to audit), approved by the company’s Board of Directors on Wednesday.

“Quarterly results were negatively and materially affected by the combined impact of the ongoing economic recession due to the COVID-19 effects on production, international commerce and travel, with a major impact on energy demand, and by oil and gas oversupplies,” a release by the company on Thursday said.

The company reported an adjusted operating loss of €0.43 billion in the second quarter 2020 as against a profit of €2.28 billion in the second quarter of 2019 (adjusted operating profit of €0.87 billion in the first half 2020, down by 81 percent compared to 2019). The lower quarterly performance was driven by scenario effects of -€2.6 billion and the operational effects of COVID-19 for -€0.3 billion, partly offset by an improved underlying performance of €0.2 billion. In the first half of 2020, the underlying performance was positive for €0.3 billion.

Adjusted net loss was putat €0.71 billion in the second quarter and €0.66 billion in the first half, driven by a lower operating profit and an increased Group tax rate that was negatively affected by the depressed scenario.

According the release, the company recorded a net loss of €4.41 billion and €7.34 billion in the second quarter and the first half 2020, respectively, “due to the recognition of pre-tax impairment losses at non-current assets for €3.4 billion (of which €2.8 billion in the second quarter) mainly relating to oil&gas assets and refinery plants, due to a revised outlook for oil and natural gas prices and product margins, equaling to a post-tax amount of €3.6 billion that includes the write-off of deferred tax assets (of which €3.5 billion booked in the second quarter). Net result was also affected by a post-tax loss on stock of €1 billion due to the alignment of the book value of inventories to current market prices.”

Adjusted net cash before changes in working capital at replacement cost was put at €3.26 billion in the first half of the year, down by 52 percent as against the first half of 2019 (€1.31 billion in the quarter, down by 61 percent) driven by negative scenario effects for -€3.5 billion, including the impact of dividends from equity accounted entities, operational impacts associated with the COVID-19 for -€0.6 billion, a non-cash change in fair valued derivatives for -€0.3 billion, while the underlying performance was a positive of €0.8 billion.

It said that the net cash from operations was approximately €2.4 billion in the first half, down by 64 percent (€1.4 billion in the quarter, down by 69 percent), net investments was €2.86 billion, down by 24 percent due to the curtailment of the capex plan adopted since March 2020, fully funded by the adjusted cash flow, net borrowings was €19.97 billion (€14.33 billion when excluding lease liabilities), up by €2.85 billion from December 31, 2019, while leverage was 0.37, before the effect of IFRS 16, higher than the ratio at December 31, 2019 (0.24) and at March 31, 2020 (0.28). The IFRS 16 leverage was 0.51.

Speaking on the results, Eni CEO,  Claudio Descalzi said: “Eni’s second quarter results are extremely positive considering we have gone through what is likely to be one of the most challenging quarters the oil and gas industry has faced in its history. Prices collapsed along with demand due to both the pandemic crisis and geopolitical tensions. While actions taken by OPEC+ have allowed the market to reach some stability, emerging from the pandemic will be difficult, with signs of great uncertainty still to come. Given the current circumstances, Eni has promptly reacted by reviewing its 2020-2021 industrial plans with the aim of maintaining a robust balance sheet. In particular, we have taken action to reduce operating costs by €1.4 billion in 2020, without compromising employee job security. Capex has been cut by €2.6 billion, mainly in the upstream business, which has been most impacted by the crisis. Our gas, retail and bio-refining businesses have shown particular robustness, posting better results than those achieved in 2019 despite the effects of the pandemic and beating market expectations. These results have allowed us to once again generate cash flow exceeding capex, without affecting our €18 billion liquidity reserve at June 30, 2020.

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