Eni's CEO Hosts 2012-2015 Strategy Presentation Call (Transcript)

Eni S.p.A (E)

2012-2015 Strategy Presentation

March 15, 2012 11:30 AM ET

Executives

Paolo Scaroni – CEO

Claudio Descalzi – COO, Exploration & Production

Umberto Vergine – COO, Gas & Power Division

Alessandro Bernini – CFO

Daniela Ferrari (ph)

Analysts

Alejandro Demichelis – Merrill Lynch

Alastair Syme – Citigroup

John Rigby – UBS

Theepan Jothilingam – Nomura

Mark Bloomfield – Deutsche Bank

Jason Kenney – Santander

Neill Morton – Berenberg

Colin Smith – BTB Capital

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to ENI Strategies Presentation. For the duration of this call, you will be in listen-only mode. However, at the end of the call, you have the opportunity to ask questions.

I’m now handing you over to your host to begin today’s conference call. Thank you.

Paolo Scaroni

Good afternoon, ladies and gentlemen and welcome to our Strategy Presentation. This afternoon I will give you an update on our prospect and targets in each of our main divisions. But before we do that, I would like to highlight how ENI has consolidated its position over the past years and why we’re now about to enter the period of rapid growth which would last not just for the next four years but for the next decade.

In E&P, the restart of our activities in Libya is leading towards fast recovery in our 2012 production. In 2011, we’ve also made significant progress on key projects including the FIDs of giant fields in Venezuela and Russia adding certainty and visibility to our near term growth prospects.

Of the key reason why ENI is stronger now than a year ago is the success of our restorations in Norway, West Africa and Mozambique, which will drive our strong growth to 2021 and beyond.

Turning now to our medium downstream businesses, over the last year, we have taken further steps to increase our competitiveness in what remains a challenging market contest. In gas and power, we’ve concluded contra-renegotiations with two of our main suppliers, Sonatrach and Gazprom. We re-leverage on our improved cost and flexibility to continue to build out European market to print. A strategy which will position us well to recover profitability as the market tightens.

In R&M and chemicals will further stream-lined our operations and have targeted additional cost savings and optimizations in each business. In chemicals in particular, we’re also targeting a number of initiatives, which will significantly improve our competitiveness.

Let me now take you through our strategy and targets in more detail. In E&P, our consistent track record of exploration success over the past year is the key driver of our growth. While 2011 has been an extraordinary year in terms of the size and potential on our new discoveries, it is not an outlier in terms of results. Over the past four years, we have discovered around 4 billion BOE of new resources almost double our cumulative production of 2.5 billion BOE with the progressive strengthening of our resource base to 32 billion BOE.

Meanwhile with unit exploration cost of around $1.7 per barrel over the past four years, our exploration success supports our capacity to deliver sustainable returns on new projects and our almost ENI oil price scenario, and then IRR in excess of 20% at our planned scenario of $90 for 2012 and 2013 and 85 thereafter.

Our consistence performance confirms the effectiveness of our exploration strategy with this focus on proven basis and a select number of high potential frontier teams. Building on the success over the next four years, we will increase our exploration efforts to further strengthen the basis of our long-term growth.

Let’s now take a closer look at our upstream growth profile. Between now and 2015, we will add around 700,000 BOE per day of new production through, over 60 major start-ups including three of our fields in the Yamal peninsula in Siberia, Goliath in Norway, Perla and Junin 5 in Venezuela, block 1506 in Angola and of course Kashagan, which we’re on track to start-up by the end of 2012.

Of the total new production which will come on stream by 2015, around 70% comes from exploration. What the remaining 30% comes from the acquisition of underdeveloped resources, in particular, our fields in the Yamal peninsula and Junin 5.

This solid pipeline of projects will lead to average production growth of at least 3% a year to 2015. At our planned scenario of $90 per barrel for 2012 and 2015 and $85 per barrel thereafter and normalizing 2011 production for the Libya impact. Increased scale and the focus on oil compared to gas over the plant period, we drive an increase in cash flow per barrel of about 10% to 2015.

Looking beyond 2015, following the discovery in Mozambique, we have raised our long-term growth target from 2% to 3% a year. Africa, we continue to be the backbone of our production and growth in the next 10 years driven by growth in Angola, the start-up of Mozambique expected by 2018 and further exploration potential in existing and new countries including Ghana and Togo.

Meanwhile, in North Africa, production will continue to be resilient with very low natural decline. Our other key growth hubs will be Russia, where between 2015 and 2021, we will start-up two more Yamal Giants in the same peninsula where we will start the first (inaudible) in 2012.

Kashagan, with the ramp up of – excuse me, Kazakhstan with ramp-up of Kashagan and further potential from our development of Karachaganak. And thirdly, Venezuela, where he full field development of Perla and Junin 5 will contribute around 880,000 barrels per day of production by 2021.

In Europe and North America, we will see a broadly unchanged production level with high natural decline compensated by new projects, and in particular the screw guard and have these start-ups in the Barron Sea, which will contribute around 70,000 barrels per day by 2021.

All of this heads-up to the strongest project pipeline in our history. Claudio will give you some additional detail later on this afternoon, but given the breath of the portfolio, we will also organize a specific upstream seminar in the early autumn.

Let’s now turn to Gas & Power. The timing and terms of the disposal of our State in R&M will be addressed later in this presentation and I’m sure in the Q&A. However, I would like to take this opportunity to highlight how the perimeter of our Gas & Power division is going to change following the consolidation of R&M and of our interests in international pipelines, target temp and transit gas.

The resulting business will be made up of two main parts. The first is a semi-regulated business which is composed of our other international pipelines and some local distribution. This part of Gas & Power which in 2011 accounted for around €600 million of pro forma EBITDA we provide steady profitability over the coming years.

The second is our gas and power marketing business which has a stronger diversified portfolio of long-term gas supply contracts, power generation capacity of around 5,500 Giga-watt and a leading position in the European gas market. This is the portion of our Gas & Power which has been affected by the negative market environment including the continued availability of lower priced L&G spot cargos and the significant falling demand in particular, in the second half of 2011.

In this difficult and volatile market, the key issue is supplied. Long-term contract are essential to guarantee stable supplies to our customers. But they also need to be different from what they used to be. Their price needs to be competitive with spot gas, volumes need to offer the flexibility to cope with demand volatility and terms need to adapt when market conditions change. These are the pillars along which we have renegotiated with Libyan NOC in 2010 with Sonatrach in 2011 and with Gazprom in 2012.

We will continue to work on improving the competitiveness of our supply portfolio opening talks with stock oil in the second part of this year. Meanwhile, our improved cost position will sustain growth and consolidate our position in European retail on the back of over 1 million net new clients added in 2011.

Over the past year, we have also worked to enhance our trading capabilities, trading is here in London, the office is next to this one. The people here are in close contact with all our divisions to capture the benefits of market volatility and price differentials in different markets. One respect that the current market weakness will continue to put pressure on our merchant business in the first part of the plant period, we are confident that from 2014, 2015 onwards the European gas market will tighten again.

On the demand front, we see a recovery and then long-term growth in volumes driven by economic development and fuel switching to gas in line with the European objective of reducing CO2 emissions. In total, we expect EU demand to increase from around 500 BCN to over 560 BCN by 2015 and close to 600 BCN if we look forward to 2020.

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