The 2013 outlook features the uncertainties that surround the global economic recovery, particularly in the Eurozone, and restraint shown by businesses and households in investments and consumption decisions. A number of factors will contribute to support the price of oil including ongoing geopolitical risk as well as improved balance between world demand and supplies of crude oil and oil products. For investment evaluation purposes and short-term financial projections, Eni assumes a full-year average price of $90 a barrel for the Brent crude benchmark. Management expects continuing weak conditions in the European gas, refining and marketing of fuels and chemical sectors. Demand for energy commodities is anticipated to remain sluggish due to the economic stagnation; unit margins are exposed to competitive pressure and the risk of new increases in the costs of oil-based raw materials in an extremely volatile environment. In this scenario, the recovery of profitability in the Gas & Power, Refining & Marketing and Chemicals Divisions will depend greatly on management actions to optimise operations and improve the cost position.
Management expects the key production and sales trends of Eni businesses to be as follows:
- Production of liquids and natural gas: production is expected to grow compared to 2012 (1.701 million boe/day for 2012). The principal drivers will be the start-up of major projects, mainly Kashagan in Kazakhstan, Angola LNG and the gas assets in Algeria, as well as the ramp up of the fields started up in 2012, only partly offset by the decline in mature production;
- Gas sales: natural gas sales are expected to be in line with 2012, excluding the impact of the Galp divestment and upstream sales in USA (91.46 bcm in 2012, including consolidated sales and Eni share of the joint ventures). In a scenario of continuing weak demand and strong competition, management plans to retain the Company’s market share by leveraging improved costs in procurement and logistics, and effective commercial actions designed to upgrade service quality, targeted pricing and growth in the most remunerative segments. The international expansion in the LNG business is expected to continue by boosting the Company’s presence in the more lucrative Far East markets;
- Refining throughputs on Eni’s account: in a scenario of stagnant consumption, volumes are expected to be substantially in line with those processed in 2012 (30.01 million tonnes in 2012). This projection assumes the restart of the Gela plant in June 2013 and the start-up of the new EST technology conversion plant at Sannazzaro, as well as the shut down of the Venice plant to start the Green Refinery project;
- Retail sales of refined products in Italy and the Rest of Europe: retail sales are expected to be in line with those of 2012 (10.87 million tonnes, 2012 total), net of the effect of the “riparti con eni” marketing campaign which was executed in the summer of 2012. Management expects a modest fall in domestic retail volumes due to an anticipated contraction in domestic demand, the effect of which will be absorbed by the expected increase in sales in the Rest of Europe. In this intensely competitive context, management intends to preserve the Company’s market share in Italy by leveraging marketing initiatives to build loyalty and retain customers, the strength of the Eni brand with the completion of network rebranding, service excellence and development of the oil and non-oil offer;
- Engineering & Construction: the profitability prospects of this business are expected to be adversely affected by the conclusion of highly-profitable projects, an anticipated slowdown in order acquisitions and the start of lower margin projects in the Onshore and Offshore Engineering and Construction businesses.
In 2013, management expects a capital budget in line with 2012 (€12.76 billion in capital expenditure and €0.57 billion in financial investments in 2012, excluding the Snam investments). In 2013 the company will be focused on the development of hydrocarbons reserves in Western and Northern Africa, Norway, Iraq and Venezuela, the exploration projects in Western Africa, Egypt, the United States and emerging areas, as well as optimization and selective growth initiatives in other sectors, the start-up of the Green Refinery works in Venice, and elastomers and green businesses in the Chemical sector in Porto Torres. Assuming a Brent price of $90 a barrel on average for the full year 2013, the ratio of net borrowings to total equity – leverage – is projected to be almost in line with the level achieved at the end of 2012, due to cash flows from operations and portfolio management.