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Eni's Q2 earnings surge as upstream growth benefits from price recovery

Eni SpA reported a surge in second-quarter earnings July 27, lifted by the ramp-up of volumes from new major projects and stronger oil prices.

The Italian major said its oil and gas production rose 5.2% on the year to 1.86 million barrels of oil equivalent per day in the quarter, fueled by the ramp-up of the giant Zohr gas field off Egypt and helped by new fields in Indonesia, Congo and Ghana. Higher production at the giant Kashagan project in Kazakhstan and the Val d'Agri fields in southern Italy also lifted its volumes.

Eni, one of the fastest growing of its oil majors peers in terms of output, confirmed it expects an average 4% production growth to about 1.9 MMboe/d this year, assuming a Brent price scenario of $60 per barrel.

"Eni recorded another period of strong profitability in the second quarter," CEO Claudio Descalzi said in a statement. "Our cash generation also grew significantly, driven by the price of Brent and increased production levels."

Eni raised its upstream growth targets in March as it is prepared to extend a run of industry-leading exploration success with new drilling plans across a bigger upstream portfolio. The Rome-based major expects to grow its oil and gas production by an average of 3.5% per year over the next four years as it further develops its growing gas-focused resource base.

Supported by the further ramp-up and startup of large gas-focused finds, Eni said it expects to see a further 700,000 boe/d of production in 2021, of which 200,000 boe/d from production "optimization."

Weaker refining

Eni reported a 66% jump in adjusted earnings for the quarter at €767 million. It said the earnings growth was also underpinned by operating cost reductions, which will allow it to fund capital spending plans an pay dividend, referred to as cash neutrality, at a Brent price of $55/bbl this year.

The company also confirmed its 2018 capex guidance of €7.7 billion.

In the gas and power business, Eni reported an adjusted operating profit of €108 million, from a year-ago loss of €146 million, due to the restructuring of its long-term gas contracts and a growing LNG business.

LNG sales rose by 54% on the year to 5.40 billion cubic meters in the first half of 2018.

Downstream, Eni's refining and marketing unit reported adjusted operating profit of €61 million, down 63% on the year, after rising oil prices hit refining margins and the trading environment.

Eni said it expects a projected refining break-even margin of approximately $3/bbl by the end of 2018, helped by the restart of the EST unit, at its Sannazzaro refinery.

Robert Perkins is a reporter at S&P Global Platts, which like S&P Global Market Intelligence, is owned by S&P Global Inc.