Eni(E) - 2022 Q4 - Annual Report

Financial Performance - Eni's consolidated financial statements are prepared in accordance with International Financial Standards (IFRS) [22] - The company reported a significant increase in identified net gains, reflecting improved operational performance and market conditions [31] - Eni's leverage ratio, calculated as net borrowings to shareholders' equity, indicates a strong financial position [31] - Eni's total shareholder return (TSR) reflects a positive trend, indicating strong market performance and investor confidence [31] - The company forecasts a Brent crude oil price of $85/bbl for 2023, estimating cash flow from operations to vary by approximately €0.13 billion for each $1 change in Brent price [55] - The capital budget for 2023 is projected to be about €9.5 billion, reflecting a 15% increase compared to 2022 [56] - The Group recognized a cash expense of about €1.04 billion for a one-off windfall tax on profits in Italy [129] - A tax expense of about €1 billion was recognized due to the EU's windfall levy on hydrocarbons sector profits exceeding historical averages [130] - The Group's net income was affected by extraordinary tax charges totaling about €2.4 billion, reducing yearly cash flow by about €1.1 billion [132] Production and Reserves - The average reserve life index shows a healthy ratio of reserves to total production, ensuring long-term sustainability [32] - Eni is focusing on enhancing recovery techniques to increase production efficiency from existing wells [33] - The company plans to increase the share of natural gas production in its portfolio to 60% by 2030, which may increase the variability of results due to natural gas market volatility [55] - In 2022, approximately 71% of Eni's total oil and gas production derived from offshore fields, primarily in regions such as Egypt, Norway, and Libya [97] - As of December 31, 2022, approximately 37% of the Group's total estimated proved reserves (by volume) were undeveloped, requiring significant capital expenditures for recovery [121] - Eni's future production levels are highly dependent on the success of exploration projects and the ability to replace produced reserves [115] Market Dynamics - Global upstream capital expenditures increased by approximately 20% in 2022 compared to 2021, primarily due to cost inflation [44] - Brent crude oil prices spiked to nearly $140/bbl following the onset of Russia's military operations in Ukraine, before retreating as fears of supply disruptions eased [44] - The average price of Brent crude oil remained in the $100-120/bbl range during the first half of 2022, driven by post-pandemic recovery and increased demand [44] - The current level of global upstream investment is insufficient to maintain oil production at the necessary level of 100 million barrels/day to meet global demand [44] - Global demand for crude oil increased by approximately 2 million bbl/d in 2022, reaching about 99.6 million bbl/d, nearly in line with 2019 levels [51] Strategic Initiatives - The company is investing in new technologies for the development of second and third generation feedstocks, aiming to reduce competition with food supply [32] - Eni is expanding its LNG portfolio, with plans to increase liquefaction capacity to meet growing global demand [33] - Eni is actively pursuing strategic partnerships and acquisitions to enhance its market position and operational capabilities [32] - The company anticipates continued growth in the renewable energy sector, aligning with global sustainability goals [31] Environmental and Regulatory Risks - Eni's operations are exposed to environmental risks, including potential oil spills and other incidents that could have material adverse effects on its financial condition [98] - The company expects to incur significant operating expenses related to compliance with environmental, health, and safety regulations in the foreseeable future [170] - Eni may incur significant environmental expenses and liabilities in the future due to unknown contamination and ongoing litigation, which could adversely affect its financial condition and shareholder returns [202] - Eni's financial performance heavily relies on the legacy business of Exploration & Production, which may be adversely affected by declining demand for hydrocarbons due to regulatory changes [176] - Eni faces increasing legal risks from climate-based litigation, which could result in significant financial liabilities [184] Geopolitical and Market Influences - The geopolitical situation in Libya continues to pose risks and uncertainties to Eni's operations and financial results [144] - Venezuela's financial stress and international sanctions have negatively impacted the country's production levels and fiscal revenues, affecting Eni's operations [145] - Eni's operations in Nigeria have been negatively impacted by ongoing oil theft at onshore pipelines [148] - The company is exposed to risks from evolving sanctions against Russia and Venezuela, which could materially affect its business and financial conditions [150][151] Financial and Operational Risks - Eni's credit risk has increased due to a significant rise in energy commodity prices, impacting the financial condition of its counterparties, particularly in the retail gas and power business [218] - The company has experienced a significant level of counterparty defaults, exacerbated by weak economic growth and the COVID-19 recession, leading to increased credit loss provisions in 2022 [218] - Eni's operations are heavily reliant on the reliability and security of its IT systems, which are susceptible to cyber threats and could adversely impact business operations [208] - Non-compliance with data protection laws could expose Eni to regulatory investigations, fines, and damage to its reputation, potentially affecting shareholder returns [210]