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Eni raises oil price outlook as market recovery powers strong Q2 earnings

Highlights

Raises Brent price scenario to $65/b

Negative refining margins continue to weigh

Retails fuel sales still 15% below 2019 levels

Italy's Eni raised its near-term oil price outlook July 30 as the market rebound fueled strong second quarter earnings despite lower production volumes and negative refining margins.

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Eni said it is now assuming a near-term Brent price of $65/b, up from $60/b previously, to reflect a firming oil market scenario which helped its adjusted earnings more than treble from the previous quarter.

Hydrocarbon production in the second quarter slipped 5% on the year to average 1.6 million boe/d due to higher maintenance activity in Norway, Italy and the UK, lower activity in Nigeria and mature fields declines. In the first half, start-ups and ramp-ups added 50,000 boe/d mainly due to the Merakes gas field in Indonesia, Berkine in Algeria, Agogo in Angola, and the Mahani gas project in the UAE's Sharjah Emirate.

It reiterated plans to keep output stable at 1.7 million boe/d for this year as a whole, with production in the current quarter expected to average 1.68 million b/d.

"Eni delivered exceptional results in the second quarter of the year, continuing the upward trend of the last three quarters and beating market expectations across all of its business segments with an improved macro backdrop and energy market fundamentals," CEO Claudio Descalzi said.

Eni's adjusted earnings rose to Eur929 million ($1.1 billion) for the quarter, up from Eur270 million in the first quarter and compared with a loss of Eur714 million a year ago. Following similar moves by Shell, Eni also raised its dividend payments and announced the restart of share buybacks which were suspended last year in the wake of COVID-19 pandemic.

Eni's result highlights the sharp improvement in macro conditions over the year, with Platts Dated Brent crude averaging $68.83/b in the second quarter, up from $60.90/b in Q1, and just $29.56/b in the year-ago quarter when lockdowns saw the benchmark hit its lowest since the late 1990s.

The company said it now expects full-year 2021 cash flow from operations to be above Eur10 billion. Eni has previously forecast free cash flow generation in 2021 of more than Eur3 billion under a Brent scenario of $60/b.

Despite the earnings jump, Eni maintained its 2021 organic capex target of about Eur6 billion, of which approximately Eur4.5 billion is earnings for the upstream division.

Record low margins

In the downstream segment, however, Eni's refining margins continued to be extremely weak in the European/Mediterranean region with the Eni benchmark margin hitting historic lows of minus 40 cents/b on average in the second quarter, compared with $2.3/b in the year ago period.

"This was due to continuing pandemic effects, which on one side with the gradual easing of OPEC+ supported the cost of the oil feedstock, while on the other side negatively affected demand for products, particularly middle distillates," Eni said.

Retail fuel sales in Europe rose by 22% from the previous quarter, Eni said, due to easing restrictions on travel. European retail fuel sales of 1.79 million mt in the quarter, however, remained 15% lower on the 2.1 million mt reported for the comparative 2019 period.

Crude throughputs at Eni's refineries in Italy were 4 million mt in the quarter, 27% higher than a year ago while bio throughputs were down by 23% compared to 2020 due to a prolonged standstill of the Venice plant.

Eni reported higher earnings from its power and renewables business, which earned Eur71 million of EBIT, up Eur48 million, benefitting from effective marketing activities, a growing customer base and better margins.