Eni S p A : 2021 Fourth Quarter Results Press Release

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Rome

February 18, 2022

Eni: fourth quarter and full year 2021 results

Key operating and financial results

Q3				Q4			Full Year
2021			2021	2020	% Ch.		2021	2020	% Ch.
73.47	Brent dated	$/bbl	79.73	44.23	80	70.73	41.67	70
1.179	Average EUR/USD exchange rate		1.144	1.193	(4)	1.183	1.142	4
491	Spot Gas price at Italian PSV	€/kcm	987	156	533	487	112	335
(9)	Spread PSV vs. TTF		12	1	..	1	12	(92)
(0.4)	Standard Eni Refining Margin (SERM)	$/bbl	(2.2)	0.2	..	(0.9)	1.7	..
1,688	Hydrocarbon production	kboe/d	1,737	1,713	1		1,682	1,733	(3)
2,492	Adjusted operating profit (loss) ⁽ᵃ⁾	€ million	3,809	488	681	9,667	1,898	409
2,444	E&P		3,640	802	354	9,303	1,547	501
50	Global Gas & LNG Portfolio (GGP)		536	(101)	631	580	326	78
186	R&M and Chemicals		(105)	(104)	..	151	6	..
64	Plenitude & Power		97	132	(27)	471	465	1
1,431	Adjusted net profit (loss) ⁽ᵃ⁾⁽ᵇ⁾		2,110	50	..	4,740	(758)	..
0.40	per share ‐ diluted (€)		0.58	0.01		1.30	(0.21)
1,203	Net profit (loss) ⁽ᵇ⁾		3,822	(797)		6,128	(8,635)
0.33	per share ‐ diluted (€)		1.06	(0.22)			1.69	(2.42)
3,339	Cash flow from operations before changes in working capital at replacement cost ⁽ᵃ⁾		4,617	1,582	192	12,713	6,726	89
2,933	Net cash from operations		5,825	988	490	12,851	4,822	167

1,136	Net capital expenditure ⁽ᶜ⁾	1,775	1,209	47
11,309	Net borrowings before lease liabilities ex IFRS 16	8,987	11,568	(22)
16,622	Net borrowings after lease liabilities ex IFRS 16	14,324	16,586	(14)
40,280	Shareholders' equity including non‐controlling interest	44,823	37,493	20
0.28	Leverage before lease liabilities ex IFRS 16	0.20	0.31
0.41	Leverage after lease liabilities ex IFRS 16	0.32	0.44

5,817 4,970 17

8,987 11,568 (22)

14,324 16,586 (14)

44,823 37,493 20

1. 0.31

1. 0.44

1. Non‐GAAP measure. For further information see the paragraph "Non‐GAAP measures" on page 21.
2. Do not include any estimate on Saipem result for the fourth quarter 2021.
3. Net of expenditures relating to business combinations, purchase of minority interests and other non‐organic items.

Eni's Board of Directors, chaired by Lucia Calvosa, yesterday approved the unaudited consolidated results for the full year and the fourth quarter of 2021. Eni CEO Claudio Descalzi said:

"During 2021, we delivered excellent results and accelerated the pace of our transformation strategy, which leverages the integration of technologies, new business models and valuable relationships with our stakeholders. The strict financial discipline and cost efficiencies we implemented to withstand the downturn have allowed us to best capture the strong economic recovery of 2021. On the one hand, our upstream segment has kept generating the financial resources needed to fund our decarbonization strategy while, on the other, the new energy transition businesses, like those combined under our new entity Plenitude, have performed strongly. In this way, we have reached a Group EBIT of €9.7 bln and adjusted net profit of €4.7 bln, our best performance since 2012, a time when Brent crude oil prices exceeded the $110‐a‐barrel mark. Robust cash generation, underpinned by a selective approach to making investment decisions, has freed €7.6 bln of organic free cash flow, which we used to: boost the growth of green businesses; fund dividends and a share buy‐back at pre‐pandemic levels; and deleverage the balance sheet ‐ achieving an indebtedness ratio of 20% vs 31% a year ago. Our portfolio restructuring has moved on to unlock value from our businesses, optimize our cost of capital and maximize growth. The listing of Plenitude, which combines renewables, customers and e‐mobility, will enable us to fulfil our goal of cutting Scope 3 emissions for our retail customers. The upstream portfolio has also proven to be a value driver in the energy transition, as demonstrated by the success of the Vår Energi listing on the Norwegian stock exchange, the largest IPO of an O&G company of the last decade, as well as the upcoming creation of a strategic joint venture in Angola with BP that will combine the two partners' operations in the Country. Finally, we are developing a full range of solutions to reduce GHG emission for our plants and industrial clients through: the HyNet CCS project in the UK; agro‐biofeedstock hubs to supply our refineries; and the successful magnetic fusion test performed by CFS of which we are the main shareholder. All in all, our performance in 2021 highlighted the efficacy of the strategy launched at the start of the pandemic, which enabled us to return to pre‐crisis balance sheet strength in just a few months while simultaneously enhancing our transition plans."

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Highlights

OUTSTANDING RESULTS IN 2021, REMARKABLE PROGRESS IN THE PORTFOLIO VALORIZATION AND DECARBONIZATION STRATEGY

Operating and financial results

• Financial discipline and cost reduction initiatives implemented to withstand the enduring impact of COVID-19 enabled Eni to capture the full upside of 2021's strong economic recovery, reporting €9.7 bln of adjusted EBIT (up €7.8 bln or 400% vs. 2020).
• Adjusted net profit of €4.7 bln, the highest since 2012, driven by better operating performance, improved results of equity investments and remarkable recovery in the upstream scenario.
• For the full year of 2021, robust cash generation of €12.7 bln funded net capex of €5.8 bln. Organic free cash flow was €7.6 bln.
• Organic cash generation used to fund dividend payments and share buy-back program (total cash return of €2.8 bln), to pursue growth in the low carbon businesses (€2.1 bln), and to continue deleveraging the balance sheet (net debt reduced to €9 bln; leverage down to 0.20 vs. 0.31 compared to December 31, 2020).
• E&P adjusted EBIT at €9.3 bln, up 500% vs. 2020, keeping capital investment discipline and thanks to a yearly production of 1.7 mln boe/d.
• Plenitude adjusted EBITDA at €0.6 bln, a 25% increase YoY; retail customer portfolio at over 10 million delivery points.
• Renewable installed capacity more than tripled to 1.2 GW and over 2 GW including assets under construction, almost entirely relating to Plenitude.
• Delivered excellent exploration results by adding over 700 mln boe of new resource, with the main discovery being the Baleine reservoir, in Ivory Coast, set to be developed with a phased fast-track approach. Start-up in early production is expected by the end of 2023. The project will be the first development in Africa at net zero emissions (Scope 1 and 2).

Portfolio

• Started the listing process for Plenitude, newly created entity comprising renewable generation, customers and e-mobility, with the strategic goal of decarbonizing Eni's customer portfolio.
• Floated about 12.7% interest (including the greenshoe option) in the Vår Energi venture on the Norwegian stock exchange, marking the largest IPO in the O&G industry in Europe in more than a decade.
• Progressing terms for establishing a JV with BP in Angola, which will combine the two partners' assets in the Country to maximize returns.

Decarbonization initiatives

• The Eni-led project for the transport and storage of CO2 in depleted gas fields around Liverpool Bay as part of the HyNet consortium has been granted access to priority public funding by the British authorities, as part of the Country's decarbonization plans.
• In partnership with several African countries we operate in (Kenya, Angola, Congo and Ivory Coast), we are progressing projects based on biofuels to decarbonize the local energy mix, through the set-up of integrated agro-biofeedstock supply chains to supply renewable feedstock to Eni bio-refineries, without impacting the local food chain.
• Commonwealth Fusion System (CFS), the magnetic fusion research venture, of which Eni is the largest investor, has achieved a breakthrough result in testing superconductors for the confinement of the plasma from fusion. Completed the funding of the next phase of testing with the aim of producing energy from fusion in a demonstration plant by 2025.
• Issued a €1 bln sustainability-linked bond, the first one in the O&G sector, with an annual coupon subject to the achievement of sustainability targets related to the Net Carbon Footprint of the Upstream segment (Scope 1 and 2) and installed renewable capacity.

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• Launched Eni's first ever Energy Compact - a public commitment recognized by the United Nations - to accelerate progress towards the Sustainable Development Goal no. 7 - Affordable and clean energy.
• Achieved significant progress in Eni's ESG rankings thanks to the development of the decarbonization projects. Scored among the ten best companies of the newly launched ESG MIB index by Euronext, with the company's leadership gaining recognition in the main ESG ratings and specialized indexes (Gender- Equality Index, GEI, managed by Bloomberg, MSCI, Sustainalytics, V.E, FTSE4Good Developed Index), obtaining Prime Status from ISS ESG rating. Excellent results also across climate-focused ratings (Climate Action 100+ Net Zero Benchmark, Carbon Tracker, Transition Pathway Initiative) and confirming leadership in CDP Climate Change and Water Security questionnaires.

Q4 2021 scenario

• Q4 2021's trading environment featured unprecedented volatility in energy markets.
• The acceleration of the global recovery, driven by the re-opening of the world's economies, spurred a pent-up demand for all kinds of energy commodities across all geographies.
• Uncertainties about the possible impacts of the new COVID-19 "Omicron" variant on the economy were short-lived: Brent price following a correction of about 15% at the end of November, resumed its upward trend, supported by robust fundamentals and continuing oil and products inventory drawdowns.
  In the fourth quarter of 2021, the Brent price averaged 80 $/bbl, up 9% sequentially and almost double YoY. In January 2022, the Brent price reached its highest level since 2014.
• European gas markets have experienced extreme conditions due to tight supplies and uncertainties around gas flows from Russia, with spot prices at the continental hub ("TTF") surging to 180 €/MWh in December and then falling back to values in line with the average in the fourth quarter at 92 €/MWh (up 95% compared to Q3 2021; up 529% compared to the fourth quarter of 2020); Italian spot prices were aligned to those values due to the closing of differentials.
• Similar conditions experienced in the wholesale power market with a spot price in Italy at an average of 243 €/MWh in the fourth quarter of 2021 (up 380%), having peaked at 440 €/MWh.
• For refining margins, the downtrend worsened in the fourth quarter, down to a negative 2.2 $/bbl (more than a five-fold decrease vs the already negative value of the third quarter of 2021) due to gas and gas- indexed utilities cost growth.
• Increased cost of emission allowances to comply with the European ETS: an average of 68 €/ton in the fourth quarter of 2021, up 8% vs the third quarter 2021, more than doubled YoY.
• Margins of petrochemicals products: in the fourth quarter of 2021 cracker margin of 311 €/ton, down 11% from the third quarter of 2021 and 5% YoY. On a yearly basis, margins fell by 11%. Elastomers, styrenic and polyethylene spreads were steady.

Q4 2021 financial highlights

• Group adjusted EBIT: €3.8 bln in the fourth quarter of 2021, up 53% compared to the third quarter of 2021. The quarterly Group result was driven by the positive performance of all Eni's businesses:
• • E&P: adjusted EBIT of €3.64 bln, up 49% vs. the third quarter of 2021 (up 354% vs. the same period of 2020) due to a strengthening pricing environment and a 3% increase in production to 1.74 mln boe/d.
  • GGP: strong performance reported in the fourth quarter of 2021 with an adjusted EBIT of €536 mln, up €486 mln from the third quarter of 2021, driven by portfolio optimizations and contractual renegotiations.
  • Plenitude & Power business: adjusted EBIT at €97 mln, increasing by 52% compared to the third quarter of 2021 due to seasonal factors in the retail sales.
  • R&M: negative adjusted EBIT of €36 mln compared to a profit of €161 mln in the third quarter 2021. Reported an improved performance of €23 mln compared to the fourth quarter of 2020 as a result of higher volumes sold by commercial businesses, driven by the recovery in consumptions.

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• • Chemicals: negative adjusted EBIT of €69 mln, €94 mln lower compared to the third quarter of 2021 due to a normalization in products margins and a catch up in maintenance activity that was delayed to capture the upside of the strong market trends in the second quarter of 2021.
• Adjusted net profit: €2.1 bln in the fourth quarter of 2021, 47% higher than third quarter of 2021 due to strengthening market trends and production growth. Compared to the corresponding 2020 reporting periods, which were impacted by the COVID-19 pandemic, the performance recorded a material recovery, with net adjusted results up €2.1 bln and €5.5 bln respectively vs the fourth quarter and full year 2020.
• Cash flow from operations before changes in working capital at replacement cost: €4.6 bln in the fourth quarter of 2021, enough to fund net capex of €1.8 bln.
• Portfolio: net investment of about €2.9 bln in the full year of 2021 (including net borrowings of acquired entities), fully deployed to accelerate growth in the renewables and low-carbon businesses.
• Net borrowings ante IFRS 16: €9 bln, down €2.6 bln vs. December 31, 2020. Leverage lowered to 0.20 (vs. 0.31 as of December 31, 2020).
• Buy-back: in December 2021 finalized the €400 mln buy-back program started in August 2021, purchasing 34.11 mln shares.
• Confirmed the 2021 dividend proposal already disclosed to the market of €0.86 per share (of which, €0.43 paid as interim dividend in September 2021).

Outlook 2022

The Group financial outlook, its business prospects and the key industrial and profitability targets in the short, medium and long term will be disclosed during the Capital Markets Day scheduled on March 18, 2022. A press release illustrating the Group's strategy will be issued on the same day and disseminated through the Company's website (eni.com) and other public channels as required by applicable listing standards.

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Business overview

Exploration & Production

• Q4 2021 hydrocarbon production: 1.74 million boe/d, up 2.7% net of price effects compared to the fourth quarter of 2020; up 3.2% sequentially (1.7 million boe/d in the full year 2021 before price effects, as guided).
  Growth was fueled by continued production ramp-ups at the giant Zohr (Egypt) and Merakes (Indonesia) gas fields, with the latter achieving first gas last April.
  In the full year 2021, production fell compared to the full year 2020 due to greater maintenance activity (in Norway, Italy and the UK), lower activity in Nigeria and mature fields decline.
  Start-upsand ramp-ups added 70 kboe/d (on average in the full year of 2021) mainly due to Merakes in Indonesia, Berkine in Algeria, the Mahani gas project in the Sharjah Emirate (UAE), as well as the tie-in of the satellite discoveries of Cuica and Cabaca North in Block 15/06, offshore Angola.
• In the full year of 2021, over 700 million boe of explorative resources were discovered as part of an exploration strategy soundly balanced between near-field/ILXactivities and selected initiatives in high-risk/high-rewardsplays.
• • The main discovery made in 2021 was Baleine offshore Ivory Coast in the operated Block CI- 101, which identified resources in place estimated to be around 2 billion barrels of oil and 2.4 trillion cubic feet (TCF) of associated gas.
  • Near-fielddiscoveries were made in Angola, Norway, the UK, Mexico, Ghana, Indonesia and Egypt.
• In the full year of 2021, Eni renewed the exploration portfolio with the addition of approximately 15,800 square kilometers of new leases in Angola, the Ivory Coast, Egypt, the UAE, Norway, the UK and Vietnam.
• In February 2022, Eni has recorded positive results from its first exploration well, XF-002, in offshore Block 2 (Eni 70%, operator) in Abu Dhabi. The drilling activities are currently ongoing; the finalization is expected in the second quarter of 2022.
• Defined with the authorities of the Ivory Coast the development plan of the Baleine discovery, through a phased fast-track development plan, with an expected start-up in early production at the end of 2023 and a subsequent ramp-up. The project will be the first net-zero emission development (Scope 1 and 2) in the African continent.
• Awarded 5 exploration licenses in Egypt, 4 of which as operator in the Egyptian offshore and onshore, following the successful participation in the Egypt International Bid Round for Petroleum Exploration and Exploitation 2021. The licenses are located in mining basins with more focus of Eni: offshore East Mediterranean, the Western Desert and the Gulf of Suez, for a total acreage of about 8,410 square kilometers.
• Through Vår Energi, Eni, as a result of the tender process "2021 Awards in Predefined Areas" (APA) of the Norwegian Ministry of Oil and Energy, has been awarded 10 new exploration licenses including 5 as operator, distributed over the 3 main mining basins of the Norwegian continental shelf (NCS).
• Portfolio enhancement:
• • Angola: activities have been progressing with BP to combine the respective upstream portfolios in the country, establishing a jointly controlled venture.
  • Eni and the private equity fund HitecVision, shareholders of Vår Energi, have finalized the process of listing the investee at the local stock exchange. The transaction is in line with Eni's strategy of realizing the value of its assets and extract additional resources to finance growth of the transition businesses. The closing took place on February 16, 2022, placing about 12.7% interest (including the greenshoe option).

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