Eni(US:E)2024-04-05 14:31PART I Item 3. KEY INFORMATION This section outlines the principal risks facing Eni, categorized into market, geopolitical, competitive, climate-related, operational, legal, and financial risks Risk Factors Eni's performance is highly exposed to volatile crude oil and natural gas prices, which significantly impact operating results and cash flow - The Group's performance is heavily influenced by the volatility of crude oil and natural gas prices; in 2023, lower hydrocarbon prices reduced operating profit by approximately €5 billion and cash flow from operations by about €3 billion4452 - Geopolitical conflicts, particularly Russia's aggression in Ukraine and tensions in the Middle East, create significant macroeconomic uncertainty, risking a worldwide recession and a reduction in hydrocarbon demand575859 - Eni faces substantial risks related to climate change and the energy transition, including regulatory actions to curb emissions, potential long-term reduction in hydrocarbon demand due to new technologies, legal risks from climate-based litigation, and physical risks from extreme weather events676870 - The Exploration & Production business is subject to significant operational risks, including drilling hazards, potential for unsuccessful exploration, project development delays, and uncertainties in reserve estimates; as of December 31, 2023, approximately 38% of total proved reserves were undeveloped9294106 - Approximately 82% of Eni's proved hydrocarbon reserves are in non-OECD countries, exposing the company to political risks such as instability, unfavorable regulations, and financial difficulties in host nations, with notable exposures in Libya, Venezuela, Nigeria, and Egypt116117 - The company is exposed to material Health, Safety, and Environment (HSE) risks and expects to incur significant future expenses for compliance with environmental regulations, remediation activities, and potential liabilities from pending litigation, particularly in Italy134135143 Item 4. INFORMATION ON THE COMPANY This section provides a comprehensive overview of Eni's history, corporate structure, and strategic direction, including its decarbonization goals History and development of the Company Eni is implementing a strategy to transition towards a low-carbon economy, aiming for net-zero greenhouse gas emissions by 2050 - Eni is executing a strategy to achieve carbon neutrality for all Scope 1, 2, and 3 GHG emissions by 2050, with intermediate targets including Net Zero for Upstream (Scope 1+2) by 2030 and for the entire Eni Group by 2035171172 - The company's 2024-2027 financial plan includes a gross capital expenditure of around €35 billion and asset disposals of about €8 billion, aiming for an average net investing cash flow of €7 billion per year168 - Eni is developing a distinctive satellite business model to unlock value, creating controlled entities for high-growth transition segments (like Plenitude) and financially independent joint ventures for legacy businesses (like Azule Energy and Vår Energi)169 Key Decarbonization Targets | Target | Goal | Year | Baseline | | :--- | :--- | :--- | :--- | | Net Carbon Footprint Upstream (Scope 1+2) | Net Zero | 2030 | 2018 | | Net Carbon Footprint Eni (Scope 1+2) | Net Zero | 2035 | 2018 | | Net GHG Lifecycle Emissions (Scope 1+2+3) | -35% | 2030 | 2018 | | Net GHG Lifecycle Emissions (Scope 1+2+3) | -80% | 2040 | 2018 | | Net GHG Lifecycle Emissions (Scope 1+2+3) | Net Zero | 2050 | 2018 | Key Performance Indicators (2023) | Indicator | 2023 Value | Unit | | :--- | :--- | :--- | | Direct GHG emissions (Scope 1) | 38.69 | million tonnes CO2eq | | Indirect GHG emissions (Scope 2) | 0.73 | million tonnes CO2eq | | Indirect GHG emissions (Scope 3) | 174 | million tonnes CO2eq | | Electricity produced from renewable sources | 4,242 | GWh | | R&D expenditures | 166 | € million | | - of which related to decarbonization | 135 | € million | Business Overview This section details the operational activities and competitive landscape of Eni's core business segments Research and Development Eni's research and development strategy is central to its energy transition, focusing on process decarbonization, circular and bio-products, renewables, and operational excellence R&D Expenditure and Patents (2023) | Metric | Value | | :--- | :--- | | Total R&D Expenditure | €166 million | | R&D Expenditure on Decarbonization | €135 million (~80% of total) | | New Patent Applications Filed | 28 | - Eni's R&D strategy is built on four key directives: process decarbonization (including CCUS), circular and bio-products, renewables and new energies (like magnetic fusion), and operational excellence515517 - The company employs an Open Innovation model, collaborating with a network of 70 national and international universities and research centers, and engages with startups through its Joule accelerator and Eni Next corporate venture capital arm518 Insurance Eni manages its insurance costs and risk exposure through its captive subsidiary, Eni Insurance DAC, and by participating in mutual insurance companies like Everen Ltd - Eni utilizes a captive subsidiary, Eni Insurance DAC, and participates in mutual insurance companies like Everen Ltd to manage its insurance portfolio and control costs527 Key Insurance Coverage Limits | Event Type | Maximum Coverage | | :--- | :--- | | Offshore Environmental Damage (oil spills, clean-up) | Up to $1.1 billion | | Onshore Plants (refineries) | Up to $1.3 billion | | Tankers and Charters | Up to $1.3 million | | FPSOs | Up to $1 billion | - Management acknowledges that despite its insurance coverage, a major catastrophic disaster could result in material uninsured losses that would significantly exceed the maximum coverage provided by its policies528 Environmental Matters Eni is subject to extensive environmental, health, and safety (HSE) regulations globally, which significantly impact its operations HSE Expenditures and Performance (2023) | Metric | Value | | :--- | :--- | | Total HSE Expenses | €1,419 million | | Environmental Expenditures | €1,065 million | | Safety-related Costs | €288 million | | Health-related Costs | €57.9 million | | Total Recordable Injury Rate (TRIR) | 0.40 | - In 2023, Eni's CO2 emissions under the EU-ETS were approximately 16.03 million tonnes, exceeding its free allowances of 4.48 million tonnes; the resulting deficit of 11.50 million tonnes was covered by purchasing allowances for around €950 million5521877 - Eni's operations are subject to a complex international and EU environmental legal framework, including the Paris Agreement, the EU's "Fit for 55" package, the Renewable Energy Directive (RED III), and the Industrial Emission Directive (IED), which drive compliance costs and strategic planning533536544 Regulation of Eni's Businesses Eni's operations are highly regulated across all segments, from exploration and production to gas and power, and refining and marketing - E&P activities are governed by two main contractual types: licenses/concessions, common in OECD countries, where Eni bears all risks and is entitled to production minus royalties/taxes; and Production Sharing Agreements (PSAs), common in Africa and the Middle East, where costs are recovered via "Cost Oil" and profits are shared via "Profit Oil"599601 - In Italy, the regulatory landscape for hydrocarbons is in flux due to the PiTESAI plan, which identifies areas suitable for E&P; although a court declared PiTESAI void in February 2024, the final outcome remains uncertain, impacting future exploration and development608609 - The Italian retail gas market for non-vulnerable households transitioned away from regulated tariffs in January 2024, increasing competition; a similar phase-out for the electricity market for non-vulnerable households is scheduled for July 2024623625 - Eni is subject to Italian and EU competition rules (Articles 101 and 102 of the Lisbon Treaty), which prohibit collusion and abuse of a dominant position; mergers and acquisitions are subject to review by the Italian Antitrust Authority and other relevant bodies if turnover thresholds are met6681099 Property, Plant and Equipment Eni holds significant freehold and leasehold interests in properties globally, with its most significant properties related to petroleum operations - Eni's most significant properties are its petroleum assets; a property is deemed material if it holds at least 10% of the company's total proved oil & gas reserves and requires significant development capital669 Organizational Structure Eni SpA is the parent company of the Eni Group, comprising numerous subsidiaries, associates, joint ventures, and joint operations - As of year-end 2023, the Eni Group comprised 435 subsidiaries and 144 associates, joint ventures, and joint operations670 Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section analyzes Eni's financial performance for 2023, liquidity, and capital resources, alongside management's outlook Operating Results In 2023, Eni's financial results were impacted by a significant decline in hydrocarbon prices, leading to lower reported operating and net profits Key Consolidated Financial Data (2023 vs 2022) | Metric (€ million) | 2023 | 2022 | | :--- | :--- | :--- | | Sales from operations | 93,717 | 132,512 | | Operating profit (loss) | 8,257 | 17,510 | | Adjusted operating profit | 13,805 | 20,386 | | Net profit (loss) attributable to Eni | 4,771 | 13,887 | | Adjusted net profit | 8,322 | 13,301 | | Net cash provided by operating activities | 15,119 | 17,460 | | Capital expenditures | 9,215 | 8,056 | - The decline in 2023 results was primarily driven by lower hydrocarbon prices, which reduced the E&P segment's operating profit by about €5 billion and Group operating cash flow by an estimated €3 billion685 Adjusted Operating Profit by Segment (2023) | Segment | Adjusted Operating Profit (€ billion) | | :--- | :--- | | Exploration & Production | 9.9 | | Global Gas & LNG Portfolio | 3.2 | | Enilive and Refining | 1.2 | | Chemicals | (0.6) | | Plenitude & Power | 0.7 | - The Group's underlying tax rate for 2023 was approximately 44%, higher than 39% in 2022, due to the UK energy profit levy, adverse price effects, and non-deductible exploration expenses707 Liquidity and Capital Resources Eni's liquidity and capital needs are primarily financed through operating cash flow, divestments, and debt issuance, maintaining a strong financial position Cash Flow Summary (2023) | Metric (€ million) | 2023 | | :--- | :--- | | Net cash provided by operating activities | 15,119 | | Capital expenditures | (9,215) | | Acquisition of investments and businesses | (2,592) | | Disposals | 596 | | Dividends paid & share repurchases | (4,882) | Financial Position (as of Dec 31) | Metric (€ million) | 2023 | 2022 | | :--- | :--- | :--- | | Finance debt (including lease liabilities) | 34,065 | 31,868 | | Net borrowings excluding lease liabilities | 10,899 | 7,026 | | Shareholders' equity | 53,644 | 55,230 | | Leverage (Net borrowings/Equity) | 0.20 | 0.13 | - As of year-end 2023, Eni maintained a total liquidity reserve of approximately €27 billion, comprising €17.8 billion in cash and marketable securities and €9.1 billion in committed borrowing facilities840857 - In 2023, capital expenditures were €9.2 billion, with the largest portion (€7.1 billion) allocated to the Exploration & Production segment for field development and exploration772791 Management's Expectations of Operations For the 2024-2027 plan, Eni management anticipates profitable growth and enhanced shareholder returns, assuming a flat Brent price of $80/bbl - For the 2024-2027 plan, hydrocarbon production is forecast to grow at a 3-4% CAGR, with the share of natural gas in the production mix expected to exceed 60% by 2030806 - Planned capital expenditures for 2024-2027 are approximately €35 billion, with around €23 billion for E&P, €5.4 billion for Plenitude, and €3.4 billion for downstream activities843 - The shareholder remuneration policy has been enhanced to distribute 30-35% of cash flow from operations (before working capital) through dividends and share buybacks; for 2024, the annual dividend is planned to increase by 6% to €1.00 per share, and a new share buyback program of at least €1.1 billion will be proposed850852853 - Enilive plans to increase biofuel manufacturing capacity to over 3 million tons by 2026 and scale up its vertically integrated agricultural business to supply over 700 Ktonnes of bio-feedstock by 2027822 - Plenitude targets over 8 GW of installed renewable capacity and 40,000 EV charging points by 2027827 Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section details Eni's governance and human capital structure, including its Board of Directors, senior management, and employee numbers - Eni's Board of Directors, appointed in May 2023 for a three-year term, consists of nine members, led by Chairman Giuseppe Zafarana and CEO Claudio Descalzi; three of the nine directors were appointed from slates presented by non-controlling shareholders868869871 - The Board has established four internal committees to provide advice and recommendations: Control and Risk, Remuneration, Nomination, and Sustainability and Scenarios954 - As of December 31, 2023, Eni employed a total of 33,142 people, an increase of 954 from the previous year, with 21,749 in Italy and 11,393 abroad10001003 Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS The Italian Ministry of Economy and Finance is the controlling shareholder of Eni, holding a combined stake of 33.3% Major Shareholders (as of March 25, 2024) | Shareholder | Number of Shares | Percent of Class | | :--- | :--- | :--- | | Ministry of Economy and Finance | 157,552,137 | 4.797% | | Cassa Depositi e Prestiti SpA | 936,179,478 | 28.503% | - The Italian Ministry of Economy and Finance controls Eni through its direct shareholding and its majority stake in Cassa Depositi e Prestiti SpA (CDP)1007 Item 8. FINANCIAL INFORMATION This section refers to the detailed Consolidated Financial Statements and reiterates Eni's shareholder remuneration policy - Eni is involved in a number of legal proceedings but, based on current information and existing provisions, does not expect them to have a material adverse effect on its consolidated financial statements1017 - The company plans to increase its annual dividend for fiscal year 2024 to €1.00 per share, a 6% increase from 2023, and will propose a new share buyback program of at least €1.1 billion10221023 Item 9. THE OFFER AND THE LISTING Eni's ordinary shares are principally traded on the Euronext Milan, with American Depositary Receipts (ADRs) listed on the NYSE - Eni's primary listing is on the Euronext Milan (EXM), and its American Depositary Receipts (ADRs) are listed on the NYSE, with each ADR representing two ordinary shares1025 - As of March 25, 2024, ADRs represented approximately 1.45% of Eni's total outstanding share capital1027 Item 10. ADDITIONAL INFORMATION This section provides supplementary corporate information, including company objects, share capital structure, and tax implications for shareholders - Eni's By-laws stipulate that no single shareholder may hold more than 3% of the company's share capital, a rule from which the Italian Ministry of Economy and Finance and its controlled entities are exempt1068 - The Italian State holds 'Golden Power' under Decree Law No. 21/2012, allowing it to veto or impose conditions on transactions involving strategic assets in the energy sector to protect public interest and national security10701072 - Dividends paid to non-Italian residents are subject to a 26% substitute tax, which may be reduced under applicable tax treaties; under the Italy-U.S. Tax Treaty, the rate for qualifying U.S. residents is typically reduced to 15%11111116 - A Financial Transactions Tax of 0.10% applies to the transfer of Eni ADRs negotiated on regulated markets like the NYSE1126 Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Eni's financial performance is significantly exposed to market risks, primarily from fluctuations in commodity prices, currency exchange rates, and interest rates - Eni's financial performance is most sensitive to crude oil prices and the EUR/USD exchange rate; an appreciation of the U.S. dollar versus the euro generally has a positive impact on results11411142 - The company does not generally hedge its strategic exposure to volatile hydrocarbon prices in its oil & gas production activities863 - Market risks are managed centrally through Eni's finance departments and specialized trading units (Eni Trade & Biofuels, Eni Global Energy Markets) using derivative instruments within a framework of defined risk limits (VaR, stop-loss)1144 Item 12D. American Depositary Shares Eni's securities trade in the U.S. as American Depositary Shares (ADSs), evidenced by American Depositary Receipts (ADRs), on the NYSE - Each Eni American Depositary Receipt (ADR) represents two ordinary shares and is listed on the New York Stock Exchange (NYSE)1154 - ADR holders are subject to fees for services like issuance or cancellation (up to $5.00 per 100 ADSs) and cash distributions (up to $5.00 per 100 ADSs)1158 - For the year 2023, the Depositary, Citibank N.A., reimbursed Eni approximately $2.55 million for expenses related to the ADR program1160 PART II Item 15. CONTROLS AND PROCEDURES Eni's management concluded that its disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management, including the CEO, concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year1167 - Based on the COSO 2013 framework, management concluded that its internal control over financial reporting was effective as of December 31, 20231171 - The 2023 assessment of internal controls excluded 31 entities acquired during the year, which accounted for about 2% of total consolidated assets1169 Item 16. [RESERVED] This section covers various governance and compliance topics, including audit committee expertise, code of ethics, accountant fees, and cybersecurity Item 16A. Board of Statutory Auditors financial expert Eni's Board of Statutory Auditors has determined that all five of its members qualify as 'audit committee financial experts' and are independent - All five members of Eni's Board of Statutory Auditors are considered 'audit committee financial experts' and are independent1174 Item 16B. Code of Ethics Eni has a comprehensive Code of Ethics that applies to all employees, officers, directors, and statutory auditors, promoting ethical conduct and compliance - Eni has adopted a Code of Ethics that applies to all personnel, including executive officers and directors, to promote honest conduct and compliance with laws and regulations11751176 Item 16C. Principal accountant fees and services PricewaterhouseCoopers SpA served as Eni's principal independent registered public accounting firm for 2023, with total fees of €29.56 million Principal Accountant Fees (€ thousand) | Fee Type | 2023 | 2022 | | :--- | :--- | :--- | | Audit fees | 26,562 | 24,355 | | Audit-related fees | 3,000 | 2,834 | | Tax fees | - | 11 | | All other fees | - | - | | Total | 29,562 | 27,200 | Item 16E. Purchases of equity securities by the issuer and affiliated purchasers Eni completed its 2023 share buyback program, repurchasing 153.45 million shares for a total cost of €2.2 billion - Eni completed its 2023 share buyback program on March 5, 2024, having purchased 153.45 million shares for a total of €2.2 billion11861188 Item 16G. Significant differences in Corporate Governance practices as per Section 303A.11 of the New York Stock Exchange Listed Company Manual Eni's corporate governance, based on the traditional Italian model, differs significantly from NYSE standards for U.S. domestic companies - Eni uses a two-tier governance model with a Board of Directors for management and a separate Board of Statutory Auditors for supervision, unlike the single-tier board model common in the U.S1189 - Director independence criteria under Italian law and the Italian Corporate Governance Code differ from NYSE standards; Eni's Board assesses independence based on these Italian standards11921193 - Eni has designated its Board of Statutory Auditors to perform the functions of an Audit Committee as required by the Sarbanes-Oxley Act, utilizing an exemption available to foreign private issuers1198 Item 16K. Cybersecurity Eni acknowledges its high vulnerability to cybersecurity risks and has implemented a comprehensive program integrated into its overall internal control system - Eni's cybersecurity risk management is integrated into its overall internal control system, with oversight from the Board of Directors and the Internal Control Committee12171226 - The company has implemented a multi-layered cybersecurity program that includes prevention and detection capabilities, an incident response plan, and annual employee awareness training1215 - Key cybersecurity risks that could materially affect the company include disruptions to industrial processes, interruptions in financial IT systems, and breaches of retail customer data1218 - As of the date of the report, Eni has not identified any cybersecurity threats that are reasonably likely to materially affect its business, operations, or financial condition1237 PART III Item 18. FINANCIAL STATEMENTS This section contains Eni's audited Consolidated Financial Statements for 2023, 2022, and 2021, prepared in accordance with IFRS - The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB1284 - The preparation of the statements requires significant management estimates and judgments, particularly concerning oil and gas reserves, asset impairment, decommissioning liabilities, and environmental liabilities, with considerations for climate-related risks12871288 Item 19. EXHIBITS This section lists all the exhibits filed as part of the Form 20-F report, including corporate documents and certifications - The report includes key corporate documents as exhibits, such as the company's By-laws and Code of Ethics1240 - Certifications pursuant to the Securities Exchange Act and reports from independent reserve auditors (Ryder Scott, Sproule, DeGolyer and MacNaughton) are filed as exhibits1240