· Net Income: 2,606 millions of euro (5,046 billions of lire), up 119 percent
· Operating Income: 5,002 millions of euro (9,685 billions of lire), up 112 percent
· Revenues: 22,573 millions of euro (43,707 billions of lire), up 60 percent
· Daily Hydrocarbon Production: 1,185,000 barrels, up 11 percent
Eni SpA's Board of Directors today examined the Report on the first half of 2000 which showed a record net income of 2,606 millions of euro (5,046 billions of lire), representing approximately 90 percent of net income earned in 1999 and more than twice the amount reported for the first half of 1999.
Before non-recurring items, net income increased by 138 percent This performance is due to the exceptional increase in the prices realized by Eni on hydrocarbons produced and in refining margins, to higher hydrocarbon production sold, to increased natural gas volumes sold and transported on behalf of third parties, and to streamlining efforts which more than offset the decrease in unit margins on retail sales in Italy and on natural gas primary distribution.
The Petrochemical segment also contributed by improving its operating income by 167 millions of euro. The high level oh cash flow generated from operations will allow Eni to finance exploration and development expenditures aimed at increasing hydrocarbon production. The Report on the first half of 2000 has been transmitted today to internal and external auditors.
Operating income amounts to 5,002 millions of euro (9,685 billions of lire), an increase of 2,646 millions of euro over the first half of 1999, up 112 percent (118 percent before non-recurring items), due to:
· the marked increase in selling prices in euro realized by Eni on hydrocarbons (oil up 129.2 percent and natural gas up 79.9 percent), the 13.7 percent increase in hydrocarbon production sold and the continuing cost reductions boosted the operating income of the Exploration and Production segment to a level four times higher than in the first half of 1999 so that it accounted for approximately 63 percent of Eni's consolidated operating income, vs approximately 32 percent in the first half of 1999;
· the return to profitability of the Petrochemical segment, due to the acceleration of the recovery in the petrochemical cycle in Europe which brought to a 25% increase in unit margins and 6.6% in petrochemical sales;
· an 8 percent increase in natural gas volumes sold in primary distribution and a 43.9 percent increase in volumes of natural gas transported on behalf of third parties.
· The effects of this growth on the operating income generated by the Natural Gas segment offset in part lower primary distribution unit margins due in particular (167 millions of euro) to decision No. 193 of December 22, 1999, of the Public Utilities Authority which reduced natural gas tariffs charged by distribution companies to end users by 23.7 lire per cubic meter for the portion relating to the raw material cost from January 1, 2000.
· The Natural Gas segment's share of Eni's consolidated operating income was down to 32 percent from 65 percent in the first half of 1999;
· the increase in refining margins (the margin on Brent oil increased from 0.94 dollars/barrel in the first half of 1999 to 3.45);
· a 10 percent decrease in unit margins in retail sales in Italy resulting mainly from the increase in refined products prices that was not absorbed by selling prices due to high competitive pressures;
· fixed cost reductions amounting to 182 millions of euro, resulting from streamlining and divestments, offset in part by salary increases, the effects of inflation and the depreciation of the euro against the dollar (12 percent), and development in upstream activities.
The net positive effects of these factors were partly offset by increased amortization, depreciation and writedowns of 277 millions of euro (from 1,757 to 2,034 millions of euro), due in particular to increased amortization and depreciation charges taken in relation with development activities related to higher hydrocarbon production.
Net financial income was 49 millions of euro (95 billions of lire), a decrease of 4 millions of euro or 7.5 percent.
Net income from investments was 65 millions of euro (126 billions of lire), a 45 millions of euro increase due essentially to the higher results of Polimeri Europa Srl.
Net extraordinary expense was 293 millions of euro (567 billions of lire), up 140 millions of euro, and concerned mainly early retirement incentives and other expense related to the ongoing restructuring program, as well as the provision to the risk reserve of 112 millions of euro concerning the fine imposed by the Antitrust Authority on AgipPetroli SpA for the breach of art. 2 of Law 287/90 related to alleged cartel agreements with other oil companies (against this decision Eni filed a claim with the Regional Administrative Court of Lazio).
Income taxes totaled 2,119 millions of euro (4,103 billions of lire), up 1.128 millions of euro, as a result of the 2,547 millions of euro increase in income before taxes.
Net sales from operations were 22,573 millions of euro (43,707 billions of lire), up 8,470 millions of euro, an approximately 60 percent increase, due mainly to increased prices and volumes sold of hydrocarbons and main downstream products. This increase was offset in part by a reduction in activities in the Oilfield Services and Engineering segment.
Capital expenditures were 2,421 millions of euro (4,688 billions of lire), a 284 millions of euro increase, or 13.3 percent. Approximately 81 percent of these related to the Exploration and Production and Natural Gas segments, while 64 percent of the total was directed outside Italy.
Capital expenditures for investments amounted to 1,578 millions of euro (3,055 billions of lire) and referred in particular to the purchase of British-Borneo, the purchase of further investment in natural gas secondary distribution companies in Argentina and the purchase of Lesh SA (later merged into Agip Distribuidora SA) which owns 285 service stations and 6 storage sites in Brazil.
Net borrowings amounted to 5,820 millions of euro (11,269 billions of lire), a 447 millions of euro decrease over December 31, 1999, due in particular to the seasonality factors that affect net sales from operations in the Natural Gas and Exploration and Production segments. The net borrowings-to-equity ratio, including minority interests, decreased from 0.32 at 31 December, 1999, to 0.27.
Given present knowledge and Eni's production and sales plans, as well as the expected trends of the major factors affecting Eni's results of operations and the financial commitments for development, Eni expects to generate a much higher net income in 2000 than the record income generated in 1999 (2,857 millions of euro).
In the first half of 2000 daily hydrocarbon production averaged 1,185,000 barrels of oil equivalent (boe), up 11.5 percent over the first half of 1999, marking the early achievement of Eni's 2000-2003 Strategic Plan, due to the contribution of the acquisition of British-Borneo and some mineral assets in Ecuador, the United States and Egypt (77,000 boe/day) and to new startups.
Natural gas sales relating to primary distribution totaled 34.10 billion cubic meters, up 2.52 billion, or 8 percent, due to increased sales to Enel and to industrial customers; also volumes of natural gas transported on behalf of third parties increased sharply (2.30 billion cubic meters, or 43.9 percent) due to increased volumes transported on behalf of Enel.
Sales of refined products (25.87 million tons) increased by 570,000 tons, or 2.3 percent due mainly to increased sales to oil companies and traders, offset in part by lower sales in Italy both on the retail market, related to the decrease in the number of service stations owned (from 9,711 at July 1, 1999 to 9,179 at June 30, 2000, and on the wholesale market, due to lower fuel oil sales to thermoelectric users. Petrochemical sales (2,955,000 tons) increased by 183,000 tons, or 6.6 percent, due to the recovery in demand. Electricity sales in the first half of 2000 amounted to 2,340 gigawatt/hour.
Eni SpA's net income for the first half of 2000 was 2,779 millions of euro (5,381 billions of lire), an approximately 29% increase over the first half of 1999.
Eni's results of operations and the comparability of data are influenced by the changes in a number of external factors, such as prices of oil, refined products and natural gas, and refining and petrochemical margins, exchange rates and weather conditions in Italy. In particular Eni's results reflect the seasonality in demand for natural gas and certain refined products used in residential space heating, the demand for which is higher in the first quarter of the year which includes the coldest months, and lower in the third quarter, which includes the warmest months. Therefore, Eni's operating income, net income and changes in net borrowings in the first six months of the year cannot be extrapolated for the full year.
A summary of the Report on the first half of 2000 is enclosed in the following pages.
Rome, September 13, 2000
© 2000 Mena Report (www.menareport.com)
