Eni’s strategy for the 2013-2016 four-year period confirms the priorities of profitably growing oil and gas production, recovering profitability in the downstream gas sector, improving efficiency in downstream oil, chemicals and general services supporting business activities, as well as retaining the global leadership in Engineering & Construction focusing on the most technologically advanced and innovative segments.
Following the divestment of Snam, Eni has a more flexible financial structure and a business model more focused on upstream activities.
Net cash generated by operating activities and portfolio management will enable Eni to finance the planned relevant capital expenditure to fuel long-term growth (€56.8 billion), to remunerate Eni’s shareholders and to strengthen its finance.
In Exploration & Production, Eni confirms its strategy of organic growth focused on exploration and reserve replacement as major drivers for value creation. Average production growth is expected at a rate of more than 4% in the 2013-2016 period, confirming the targets made public. Growth will be fuelled by new production additions in Eni’s core areas (North Africa, Sub-Saharan Africa, Venezuela, Barents Sea, Yamal Peninsula, Kazakhstan, Iraq and the Far East) leveraging Eni’s vast knowledge of reservoirs and geological basins, technical and producing synergies, as well as established partnerships with producing Countries.
The main driver for growth will be the start-up of new fields, more than 90% of which relates to already sanctioned projects or projects that will be sanctioned by 2013.
The long-term sustainable growth will leverage on Eni’s commitment in exploration activities, with planned expenses of €5.5 billion, which are intended to pursue finding projects in well-established basins and in high potential frontier areas.
A further driver of production growth is technological innovation is aimed at developing drilling techniques to be applied in complex environments and monetizing gas reserves. Over the next four years, Eni will make capital expenditure of approximately €1.1 billion, of which €400 million in the Exploration & Production Division.
We plan to increase returns at our oil and gas projects by reducing time to market, as 90% of the discoveries made in 2008-2012 will reach production within 8 years from their discovery. Furthermore, we plan to retain large volumes of operated production, in order to directly manage schedules and budget costs of development projects.
To manage the risks of “project delivery” we intend (i) to in-source critical engineering and project management activities also redeploying to other areas key competences which will be freed with the start-up of certain strategic projects and increase direct control and governance on construction activities; (ii) to put in place framework agreements with major suppliers, using standardized specifications to speed up pre-award process for critical equipment and plants, increasing focus on supply chain programming to optimize the order flow.
Management believes that in the next four years Eni’s Exploration & Production activities will retain significant risks relating to our strong presence in Countries which we believe to be politically less stable than OECD Countries and our exposure to complex projects because they are conducted in harsh, remote and environmentally-sensitive areas (Arctic, Gulf of Mexico, deep offshore, etc.). Management plans to mitigate those risks by expanding the geographic reach of our operations and continuing deployment of the Eni cooperation model with host Countries based on the commitment to maximize the value delivered to local communities by the upstream activity and invest in long-term initiatives that benefit the Country (access to energy, education, and health).
Furthermore Eni intends to minimize financial exposure in Countries with political risk through well-designed agreements and a selected plan of cash-outs for each project.
Operational risk relating to drilling activities will be managed by applying Eni’s rigorous procedures throughout the engineering and execution stages, leveraging on proprietary drilling technologies, excellent skills and know-how, increased control of operations and specific technologies aimed at minimizing blow-out risks and responding quickly and effectively in case of emergencies in the next four years, Eni plans to hire more than 2,200 people to support business expansion. In order to tighten up and improve models and instruments for the development of host Countries, several initiatives have been planned, including infrastructure improvements in Libya and Kazakhstan, training and education programs in Mozambique, Kazakhstan and Turkmenistan, and projects to develop energy access in Nigeria, Ghana and Algeria.
Eni confirms its commitment to improving the safety of employees and contractors, strengthening the tools for management, training and control, and ensuring asset integrity and process security. Environmental impact targets include the containment of accidental oil spills from 2.9 boe/mmboe to 2.4 boe/mmboe by 2016, an over 30% reduction in GHG emission rates in the Exploration & Production segment for each thousand tep of gross operated production by 2015 as compared to 2010, by means of flaring down policies especially in Africa and energy efficiency programs. Projects for production water reinjection will lead to a rate of reinjection of 65% of total water produced by 2016.
In the Gas & Power Division the competitive scenario is expected to remain weak on the back of the economic downturn in the Eurozone, oversupply overhang, very liquid continental hubs for spot transactions and competitive pressure. This scenario influenced the gas market over the latest years, driving a progressive deterioration in results of operations and cash flows due to a continuing slowdown in spot prices, pressed by weak fundamentals, while divergent trends in oil-linked supply costs have squeezed commercial margins.
In the medium-term Eni intends to recover profitability leveraging on (i) a competitive and flexible cost position thanks to contracts renegotiation; (ii) an expansion in gas sales in Italy through its sales force, diversified offer of innovative products and best-in-class services, mainly to the retail segment; (iii) a selective development in activities outside Italy, focusing on more profitable segments and increasing LNG sales in profitable markets outside Europe. In particular, in the retail segment in Italy, Eni intends to continue implementing commercial and retention initiatives, as well as a marketing campaign focused on the so called commercial offer “luce, gas, carburanti” (electricity, gas and fuels) and the adoption of lean marketing procedures to facilitate customers’ tasks and optimization of commercial channels (such as agencies, remote selling, energy stores) with a strong focus on web channels.
In the Industrial segment our commercial offers will be boosted by new products which will enable our customers to benefit from increasing flexibility in terms of minimum take, original contractual clauses and a dynamic management of certain contracts in order to best suit even more sophisticated customers’ needs. Furthermore, management intends to exploit synergies deriving from the integration of the Group commodity risk management and trading with the supply activities of the Gas & Power and the Refining & Marketing Divisions and the non-retail commercial sales of gas and LNG to fully centralize and optimize Eni’s commodity risk exposure.
The mitigation of the take-or-pay risk associated with long-term supply contracts is assuming a primary importance in the gas sector. In order to minimize the impact on future cash flows, management intends to renegotiate gas supply contracts and achieve a reduction in the annual minimum take, increased flexibility in logistics and commercial activities, as well as to optimize gas portfolio and maximize gas sales.
The power generation business model confirms the adoption of the combined cycle gas fired technology. Energy saving initiatives are planned. We project to boost the use of renewable energy by increasing the installed capacity of photovoltaic modules up to 20.2 MW to produce clean power at our industrial sites. In the 2013-2016 period, Eni will launch a “water & energy” project for achieving energy savings also with a more rational use of water.
The Refining & Marketing Division will continue facing a weak refining outlook plagued by declining fuels demand, excess capacity and risks of margin pressure due to upward trends in oil-linked raw material costs. In the refining activity Eni expects to gradually recover profitability throughout the plan period leveraging: (i) optimization of industrial plants and of logistics operations by means of higher flexibility, process integration and efficiency; (ii) selective investments which will target to upgrade conversion capacity and asset integrity; (iii) the conversion of the Venice plant into a “bio-refinery” to produce bio-fuels; (iv) cost reduction programs.
In Marketing operations management plans to strengthen Eni’s leadership in the Italian retail market leveraging on opportunities deriving from the liberalisation process (i.e. closing stations with low throughput, boosting full “iperself” mode and development of non-oil activities).
In wholesale businesses, Eni intends to improve its position in established markets, recover efficiency, use web based tools to obtain a more efficient and economical relation with clients, reorganize its business units in order to gain greater operating efficiency.
Building on these initiatives, in the 2013-2016 four-year period, Eni expects; (i) to increase its adjusted EBIT under constant scenario assumptions (base 2012) by €0.5 billion by 2016 (in line with the previous Plan’s targets); (ii) to maintain its retail market share in Italy.
Research projects will focus on (i) technologies for the total conversion of the barrel and reduction of the environmental footprint in refining processes; (ii) quality improvement of fuels at economic conditions; (iii) production of bio-fuels.
Our targets in environmental sustainability include energy saving projects aimed at cutting emissions and use of fresh water; in particular our commitment is to reach total savings of 106 ktep/y (of which 45 ktep/y from 2013) entailing a saving in CO2 emissions of 307 kton/y (of which 130 kton/y from 2013). Water reuse projects at Gela and Sannazzaro are expected to lead to savings of water of 5 mmcm/y.
Eni’s Chemical segment is exposed to fluctuations in the economic cycles, competitive pressures and the risk of increases in the cost of oil-based raw materials in particular in its more commoditized lines of business and in those with low technologic content.
Eni confirms its strategy of progressively reducing the exposure to loss-making commodity chemicals while at the same time developing innovative and niche productions which are expected to yield better returns such as elastomers and the expansion of the specialties segment. Eni intends to grow the green chemistry business leveraging on the ongoing project of converting its Porto Torres site in a modern plant for the manufacture of eco-compatible chemical products. This will allow Eni to: (i) diversify its petrochemical core business in the direction of an innovative sector with very high potential, supplying products with low environmental impact; (ii) settle the issues at critical industrial sites, re-qualifying and restructuring them. In 2012 Matrìca SpA, a new 50-50 joint venture with Novamont, started the construction of the first two plants of the Green Pole project (bio-monomers and bio-lubricants). When fully operational in 2016-2017, the pole will include 6 plants and one research centre, with a total expenditure of approximately €500 million (including interventions on local infrastructure). New research lines have been activated in the area of products from renewable sources. In this field, Eni signed an agreement with Genomatica, a company active in bio-technologies and yulex.
The recent strategic alliances in Asia, supported by our technological know-how and the enhancement of Eni’s proprietary technology platform confirm a greater internationalization of our business, projecting it towards markets characterized by high-growth demand rates.
In the Engineering & Construction segment, Eni confirms its target of consolidating the global competitive position achieved in the offshore and onshore businesses and its role as high-quality niche player in the deepwater drilling business. Saipem will leverage on the enhancement of the EPC(I)-oriented business model, its world-class technology, engineering and delivering skills, its strong local presence and established relationships with oil Majors and National Oil Companies.
In this light the company targets to strengthen its construction ability particularly in large highly-complex projects, in harsh environments, keeping a selective commercial approach. Our focus on local content in strategic areas will contribute to the monetization of achieved competitive advantages. For the next four years, Eni expects to significantly increase its workforce outside Italy. Our initiatives with local communities foresee an expenditure of approximately €6.2 million in the 2013-2016 four-year period dedicated mainly to the social and economic development of communities in Kazakhstan, Indonesia, Nigeria, Brazil and Peru.
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