Integrated Annual Report 2016 Mission
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Integrated Annual Report 2016 Mission We are an energy company. We are working to build a future where everyone can access energy resources efficiently and sustainably. Our work is based on passion and innovation, on our unique strengths and skills, on the quality of our people and in recognising that diversity across all aspects of our operations and organisation is something to be cherished. We believe in the value of long term partnerships with the countries and communities where we operate. Eni worldwide presence R&M E&P G&P & C Austria Belgium Eni’s Croatia Cyprus Europe Czech Republic Denmark France activities Germany Greece Greenland Hungary Ireland Italy Eni’s portfolio of conventional oil Luxembourg Montenegro assets with a low break-even price Norway reference as well as the quality Poland Portugal of the resource base with options for Romania Slovakia anticipated monetization represent Slovenia the competitive advantages of Eni’s Spain Sweden upstream business. Switzerland the Netherlands the United Kingdom The large presence in the gas and Turkey Ukraine LNG markets and know how in the Algeria rening business enable the Angola company to catch joint opportunities Congo Africa Egypt and projects in the hydrocarbon Gabon Ghana value chain. Ivory Coast Kenya Liberia Eni’s fundamentals, such as the high Libya Morocco portion of gas reserves and the Mozambique opportunity to grow in the renewable Nigeria South Africa sources segment, leveraging on Tunisia synergies with Eni’s industrial plants, Australia China will sustain the path of the business India model to a low carbon scenario. Indonesia Iraq Japan Jordan Eni’s strategies, resource allocation Kazakhstan processes and conduct of day-by-day Kuwait Asia and Oceania Malaysia operations underpin the delivery of Myanmar Oman sustainable value to our shareholders Pakistan and, more generally, to all of our Russia Saudi Arabia stakeholders, respecting the Singapore South Korea countries where the company Taiwan operates and the people who work the United Arab Emirates Timor Leste for and with Eni. Turkmenistan Vietnam Our way of doing business, based Argentina Canada on operating excellence, focus Ecuador Mexico on health, safety and environment, America Puerto Rico is committed to preventing and the United States Trinidad & Tobago mitigating operational risks. Venezuela Eni engages in oil and natural gas exploration, field development and production, mainly in Italy, Algeria, Angola, Congo, Egypt, Ghana, Libya, Mozambique, Nigeria, Norway, Kazakhstan, the UK, the United States and Venezuela, overall in 44 countries. Exploration Onshore Developing Offshore oil and gas fields Upstream Liquefying gas Trading and shipping Mid-Downstream Refineries and petrochemical plants International oil and gas markets Rigassifying LNG Renewable energies production Gas and power sales Green production Power generation Chemical products Lubricants B2C B2B Fuels Eni sells gas, electricity, LNG and oil products in the European and extra-European markets, also leveraging on trading activities. Products availability is ensured by oil and gas production in the upstream segment, long-term gas supply contracts, CCGT power plants, Eni’s refinery system as well by Versalis’ chemical plants. The supply of commodities is optimized through trading activity. Integrated business units enable the company to capture synergies in operations and reach cost efficiencies. Integrated Annual Report Integrated Annual Report 4 Letter to shareholders Eni’s 2016 integrated annual report is prepared in accordance with principles included in 8 Profile of the year the “International Framework”, published by 14 Materiality and stakeholder engagement International Integrated Reporting Council (IIRC). It is aimed at representing financial and 16 Business model sustainability performance, underlining the existing connections between competitive environment, 18 Scenario and Performance group strategy, business model, integrated risk management and a stringent corporate 20 Strategy governance system. 22 Targets, risks and treatment measures 24 Governance Operating review Disclaimer 28 Exploration & Production This annual report contains certain forward-looking statements in particular under the section “Outlook” 44 Gas & Power regarding capital expenditures, development and management of oil and gas resources, dividends, 49 Refining & Marketing and Chemicals allocation of future cash flow from operations, future operating performance, gearing, Financial review and other information targets of production and sale growth, new markets, and the progress and timing of projects. By their 56 Financial review nature, forward-looking statements involve risks 61 Profit and loss account and uncertainties because they relate to events and depend on circumstances that will or may occur in 68 Summarized Group Balance Sheet the future. Actual results may differ from those expressed in such statements, depending on 70 Summarized Group Cash Flow Statement a variety of factors, including the timing of bringing new fields on stream; management’s ability in 71 Risk factors and uncertainties carrying out industrial plans and in succeeding in commercial transactions; future levels of industry 87 Outlook product supply; demand and pricing; operational problems; general economic conditions; political 88 Other information stability and economic growth in relevant areas 89 Glossary of the world; changes in laws and governmental regulations; development and use of new technology; changes in public expectations and other changes in business conditions; the actions of competitors and other factors discussed elsewhere in this document. “Eni” means the parent company Eni SpA and its consolidated subsidiaries. Ordinary Shareholders’ Meeting of April 13, 2017. The extract of the notice convening the meeting was published on March 1, 2017 Letter to shareholders Since the beginning of the oil downturn in 2014, Eni’s strategy has been refocused on three pillars: a successful exploration with low unit costs and a fast time to market; the deployment of the dual exploration model through the disposal of these successes anticipating the conversion in cash of resources as to reconcile organic growth and a robust balance sheet; a continuous focus on the cost base to adapt the business model to a low commodity price scenario both in upstream and in downstream businesses. The outstanding industrial and financial results delivered in in less than 30 months; (iii) the first of the Congo discoveries, 2016 and strengthened growth and value prospects have Nenè Marine, achieved first oil in less than 15 months. proven the effectiveness of this strategy, launched in 2014, These results reflect Eni’s priority to convert exploration successes anticipating the extraordinary declining trend in Brent prices. rapidly into economic value by starting production quickly whilst First of all, in delivering our strategy, we strengthened the E&P looking to sell down stakes (dual exploration model) with a view of segment, the main driver for growth and value generation. anticipating reserves monetization. In the last three years, hydrocarbon production increased The effectiveness of our dual exploration model has been proved by 15% (up by 240 kboe/d) exclusively organically, by the sale of a 40% stake in Zohr with expected cash in of notwithstanding capex reduction. In 2017, Eni will continue to approximately €2 billion, net of the reimbursement of expenditures grow, reaching an all-time high output of about 1.84 million incurred by Eni in 2016 and a reduced capex exposure while barrels of oil equivalent per day, adopting an even stricter retaining a high growth rate. In the last three years, we significantly capital discipline. reduced the break-even of our project portfolio, this achievement In 2016 once again, Eni reaffirmed its exploration leadership in was driven by competitive discovery costs, a design to cost the industry with 1.1 bln boe of additional resources, discovered approach in exploration which has focused conventional prospects mainly in Egypt. in proximity of existing producing facilities leading to fast Additions to the Company’s resources backlog were 3.4 bln boe in time-to-market and cost synergies, as well as efficient the last three years, at a cost of 1 $/boe. development activities and field operations. Against the backdrop a weak commodity environment, we have Our new model to develop reserves foresees a strong integration redefined the role of exploration on near-field plays, to ensure between exploration phases and field start-ups, leveraging on fast production support and quick conversion of resources into technology and phased approach to minimize technical and economic returns. economic risks. We will leverage on insourcing and solid monitoring We achieved extraordinary results with the gas discoveries of critical phases, such as engineering, commissioning and hook-up. of the Great Nooros area onshore and of Zohr, offshore Egypt, In 2016 we reached the best ever performance in Eni’s history in made in 2015-2016 and in 2015 respectively, as well as the oil terms of reserve replacement ratio at 193%, with an average rate discoveries of the Block Marine XII in Congo (2014-2015). These of 150% in the 2014-2016 three-year period due to exploration accomplishments owed to the application of our distinctive success, progresses in the development activities and accelerated technologies to mature prospects, also in some cases relinquished final investment