Eni SpA (E)
Q4 2012 Earnings Call
February 15, 2013 8:00 am ET
Executives
Paolo Scaroni - Chief Executive Officer and Director
Massimo Mondazzi - Chief Financial Officer
Claudio Descalzi - Chief Operating Officer of Exploration & Production Division
Marco Alverà - Senior Executive Vice President of Trading
Daniele Ferrari
Camilla Palladino
Analysts
Theepan Jothilingam - Nomura Securities Co. Ltd., Research Division
Hootan Yazhari - BofA Merrill Lynch, Research Division
Nitin Sharma - JP Morgan Chase & Co, Research Division
Oswald Clint - Sanford C. Bernstein & Co., LLC., Research Division
Irene Himona - Societe Generale Cross Asset Research
Alastair Roderick Syme - Citigroup Inc, Research Division
Mark A. Bloomfield - Deutsche Bank AG, Research Division
Michele della Vigna - Goldman Sachs Group Inc., Research Division
Jon Rigby - UBS Investment Bank, Research Division
Kim Fustier - Crédit Suisse AG, Research Division
Andrea Scauri - Mediobanca Securities, Research Division
Jason Kenney - Grupo Santander, Research Division
Presentation
Operator
Good afternoon, ladies and gentlemen, and welcome to Eni's 2012 Fourth Quarter and Full Year Results Conference Call hosted by Paolo Scaroni, Chief Executive Officer; and Massimo Mondazzi, Chief Financial Officer. [Operator Instructions] I'm now handing you over to your host to begin today's conference. Thank you.
Paolo Scaroni
Good afternoon, ladies and gentlemen. Welcome to our conference call. I will take you through some of the highlights of this year, and then I will hand you over to Massimo Mondazzi, our CFO, who many of you know well from his time as deputy CFO of Eni and in key positions in E&P, for a more detailed look at the Q4 and full year numbers.
With regard to the highlights in 2012, Eni delivered a robust performance. On top of that, we have fundamentally changed the profile of our company. Eni is now financially stronger and more focused. Our balance sheet has been transformed through the disposal of significant stakes in Snam and Galp, we have reduced net debt by almost EUR 13 billion, bringing our leverage to 25% from the previous 46%. Our remaining stakes in Snam and Galp are worth around EUR 5 billion at current market prices, and we will continue to push new value-creating opportunities. The transformation of our balance sheet has gone hand-in-hand with that of our long-term growth prospects.
Exploration has been truly exceptional. In 2012, we have added over 3.6 billion boe of new resources or almost 6x our 2012 production. And this is not just Mozambique. We have also had significant success in the Barents Sea, West Africa and in Egypt. And through efficient project sanctioning, we have achieved an organic reserve replacement ratio of 147%. We are on track with our major development projects. In particular, we are pressing ahead with Mozambique, thanks to the agreements tracked with Anadarko in December and confirmed FID by 2014.
And with regards to Kashagan, we are progressing steadily towards completion, and we will start up before the contractual date of June 2013. Of course, growth needs to be built on a secure base. And on that front, you should note that Libya has delivered a robust performance with a quicker ramp-up than many were expecting, although there is still a shortfall compared to prerevolution production levels.
While Eni's value-creation opportunities have never been stronger, reaping the full benefits of this transformation requires structural reform of our mid and downstream businesses. In Gas & Power, we have seen continuing demand distraction. In 2012, consumption was 6% lower in Italy and in key European countries year-on-year and 12% lower compared to precrisis 2008. This has prevented European oversupply from being absorbed and spot prices from closing the gap with oil-linked prices.
In this context, our focus is on the renegotiation of our supply portfolio. We have now opened renegotiations regarding around 80% of our supply base. At the same time, we have focused our commercial efforts on segments in which we can add value, such as retail and LNG. On top of that, we have launched a reorganization to integrate the supply activities of Gas & Power and R&M together with trading risk management and the wholesale commercial activities of Gas & Power, including LNG. This integration will allow Eni to capture synergies between supply, trading and sales, which are becoming increasingly interconnected as the market for natural gas becomes more liquid. This activity will be led by Marco Alverà, who's currently in charge of our trading arm and in the past has run the supply activities of Gas & Power.
Turning to R&M. Here, too, we are facing unprecedented product demand declines, down 10% year-on-year in Italy, adding further pressure to Europe's structural refining overcapacity. We have made progress in aligning capacity with demand through the temporary closures at the Gela, Venice and Taranto refineries and have reduced cost by over EUR 100 million.
Lastly, Versalis has experienced the worst scenario on record with high naphtha and utility costs and low prices for commercial chemical -- for commodity chemicals. We are working to reduce our exposure to loss-making commodity chemical while at the same time striking international alliances to strengthen our position in more profitable niches.
Overall, 2012 was a strong year for our company with a robust results in E&P and good progress on the restructuring of our downstream businesses. As a result, the Board of Directors intend to submit a proposal to the AGM for a full year 2012 dividend of EUR 1.08 per share.
And now over to Massimo for a more detailed look at our numbers.
Massimo Mondazzi
Thank you, Paolo. In the fourth quarter of 2012, the market environment was mixed. The average Brent price was $110, slightly up versus last quarter and year-on-year.
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