Italian energy group Eni (ENI.MI) pledged to return more cash to investors after reporting record profit last year and defended its strategy of continuing to invest in gas.
Shares in Eni fell as much as 5.4% despite the company becoming the latest energy group to report bumper results for 2022, underpinned by an unprecedented spike in commodity prices due to the war in Ukraine.
Eni Chief Executive Claudio Descalzi said he was not surprised at the market reaction.
“The updated strategy and the new remuneration policy need to be digested by investors… it normally takes one to two weeks,” the CEO told journalists.
Presenting its 2023-2026 strategy, the group said it would raise its 2023 dividend by 7% and buy back shares worth 2.2 billion euros ($2.3 billion).
It also announced it was severing the link between the price of Brent oil and its remuneration policy.
“First we wanted to simplify (the remuneration policy) and also we wanted to acknowledge that Plenitude (retail and renewables), bio-refineries and other non-oil businesses are growing,” Descalzi said.
As a rule for the medium-term, Eni pledged to return to investors between 25% and 30% of its cash flow for operations (CFFO) through a combination of dividend and share buybacks.
In upside scenarios, the company expects to apply a figure of 35% of incremental CFFO for distribution.
Eni’s adjusted net profit rose to 13.3 billion euros in 2022, the highest in over a decade, despite a weaker exploration and production performance in the last quarter.
GAS ROLE
Oil and gas production will grow between 3% and 4% on average every year to 2026 and then remain pretty stable until 2030, the company said. The share of gas production will raise to 60% by 2030.
“Gas is the only hydrocarbon that can accompany energy transition,” Descalzi said, adding that the negative consequences of the war in Ukraine were exacerbated by the lack of investments in gas in the past years.
“We are in this situation because (in the past) we thought we could avoid to have gas”.
Under its new strategy plan, Eni will generate a CFFO before working capital of over 17 billion euros in 2023 and of over 69 billion euros in total by 2026.
Emission reduction targets were confirmed, with the group aiming to reaching net zero emissions by 2050.
Eni said it would grow its green businesses and indicated that Plenitude was expected to reach a core profit of 1.8 billion euros by 2026, three times its 2022 level.
“We don’t have a plan B for Plenitude, we have two plan As,” Descalzi said, adding that Eni could list the subsidiary, sell a stake to a partner or combine the two transactions to extract value from the unit.
Eni had to freeze its plans to list the subsidiary last year due to volatile financial markets.
STAYING ON?
This year capital expenditures will be around 9.5 billion euros and 37 billion euros over the plan, up 15% in U.S. dollar terms versus the outlook provided last year. Low and zero carbon spending will be around 25% of the total.
Eni expects operating profit to fall to 13 billion euros this year after adjusted EBIT was 20.4 billion euros in 2022.
In May the Italian government, which has a controlling stake in the group, will decide whether to appoint Descalzi for another three-year term. Sources have told Reuters the top executive has high chances of a record fourth term.
“It is up to shareholders to decide… Eni can live without me because it is a strong group,” Descalzi said.
