Good afternoon, ladies and gentlemen, and Welcome to Eni's 2021 Q3 Results Conference call hosted by Mr. Francesco Gattei, Chief Financial Officer. For the duration of the call, you will be in listen-only mode. However, at the end of the call, you will have an opportunity to ask questions by pressing star and one on your touchtone telephone. For operator assistance, please press star and zero. I am now handing you over to your host to begin today's conference. Thank you.
Thank you. Good afternoon. Welcome to Eni nine months of 2021 conference call. he recovery of the global economy and the rebound in the demand for energy is continuing and accelerating. However, the pent-up demand that is reemerging after the unprecedented disruption of 2020 is putting strain on the balance of the market. In 2021, structural features of supply weakness, which are substantially extending along the full range of commodities, have emerged. The slowness of the supply response is not only related to the rapid recovery of the economy, but more substantially to nearly seven years of underinvestment that has affected these markets. As a consequence, Brent has returned to levels around $85 per barrel, while in gas, we are witnessing historical record at $30 per million BTU on the European and Asian spot markets.
Eni will remain focused on capital discipline to reduce its cash neutrality, the rapid deployment of new technology to speed up the execution of our decarbonization plans and on the acceleration in establishing dedicated business vehicles as a key strategic element to focus our growth and to realize the full value of our portfolio. Let's now move on to the summary of our results. In the Q3 of 2021, we accelerated our economic and financial results and provided evidence of consistent operating performance. This trend is expected to continue in the coming months. Looking at our Natural Resources business, in upstream, we produced 1.66 million barrels per day in the first nine months and continued delivering exploration results with the recent major discovery in Ivory Coast.
In GGP, we were able to capture the extraordinary uplift of gas prices and successfully renegotiated long-term contracts to align their terms to current market conditions. In terms of portfolio, we are progressing with the business combination in Angola, and as announced a few days ago, we have launched the process of ownership structural review for Vår Energi that could include a potential IPO in 2022. Furthermore, our HyNet CCS project in the U.K. was accepted as a track one project, giving it access to the GBP 1 billion U.K. government fund and allowing Eni to proceed in developing one of the first U.K. industrial clusters to apply CCS and materially reduce CO2 emissions in the country. With regard to Energy Evolution, in early October, we launched the process for an initial public offer for our newly integrated Retail & Renewables business.
We will detail more on this in the next slide. In downstream, R&M is now almost at breakeven year to date, while on chemical, Versalis reported an excellent performance in the first nine months. Turning to group financial, our net profit adjusted of the nine months settled at EUR 2.6 billion, exceeding 2019 pre-COVID level, driven by the EUR 1.4 billion of the Q3 , among the strongest results since 2013. Our retail and renewables initial public offering is a strategic milestone for Eni's strategy of decarbonizing our domestic client, accelerate growth in new green power capacity and additional customers, and creates an independent, self-financed entity to ensure the most efficient capital allocation.
Our unique business that merge Retail & Renewables and EV charging points will result in a synergic model that will de-risk our growth and will expand the green offer we can provide to our clients. Listing of the new shares subject to market condition at the Milan Stock Exchange is expected in 2022. Further update on this business, including the new company name, will be made on the Capital Market Day on 22 November. We are not limiting the portfolio restructuring only to our renewable business. In the upstream business, we continue to seek opportunities to enhance the value of the portfolio through business combination that had proved successful in creating growth-oriented, fully autonomous vehicles. Vår Energi in Norway was the first example of how such organization could unlock potential.
Created in 2018, it is now the largest independent E&P company in Norway with 239,000 barrels per day, and it is a reliable source of cash through dividends to the parent company. Operational excellence and development of a diversified portfolio allow it to increase average production by more than 30% in three years, while a focused near field exploration enhances the future potential with resource discovery in the last two years of more than 180 million barrels of oil equivalent. We are ready to move to a new step for the Vår Energi story. This week, we have launched a review of company structure to further crystallize value either through an IPO or a partial stake sale. We expect to conclude this process subject to market conditions in 2022.
At the same time, in Angola, we are well progressing with the business combination with BP, with establishing a top-ranked player in the country by early next year. Let's now move to 2021 results. In Natural Resources, upstream recorded a solid performance with adjusted EBIT in the first nine months at EUR 5.7 billion. The Q3 results at EUR 2.4 billion are above pre-COVID level despite production still ramping up after the maintenance season. In the quarter, production was sustained by recovery of planned turnaround, especially in Norway and the ramp-up in Indonesia, Sharjah in the United Arab Emirates, and in Angola, which more than compensated the PSA effect and disruption of Hurricane Ida.
We expect production to further recover in the last quarter at 1.76 million barrels per day, thanks to the ramp-up in Norway and Kazakhstan and production recovery in USA, and confirming our early guidance of around 1.7 million barrels. Focusing on exploration, Eni confirms its leading performance with a major discovery in Ivory Coast in September. The first well discovered light oil and associated gas in a new play concept in the deep water Baleine prospect, with preliminary estimate on more than 2 billion barrels of oil equivalent. Baleine project is designed to target fast-track development to meet domestic gas need, and it will be the first example in Africa to reach net zero emission scope one and two. Finally, with its 90% working interest to Eni, the field is a potential candidate for our dual exploration model.
Our nine-month total discovery resources were more than 600 million barrels worldwide. Thanks to this performance, we can raise today our 2021 target by 40% to 700 million barrels. In GGP, we registered a positive EBIT in the last quarter. Capturing the spike in spot price, we have been able to optimize our portfolio more than offsetting the negative PSV-TTF spread. Thanks to continuing portfolio optimization in this favorable market scenario and to one-off contribution from the conclusion of contract renegotiations, we now expect to exceed EUR 500 million of EBIT and EUR 300 million of free cash flow for 2021. This guidance could be possibly revised upward under sustained volatile and tight market conditions. Moving now to Energy Evolution, all the business contributed with positive results in this quarter.
In Retail and Renewables, pro forma EBITDA at EUR 440 million represent a 35% increase year-on-year, sustained by extra commodity service contribution and customer base management actions. We expect the combined entity to continue its steady growth towards the end of this year for an EBITDA of EUR 600 million and with renewables EBITDA at breakeven. R&M turned positive with an EBIT of EUR 160 million in the last quarter. Traditional refining contributed thanks to higher throughputs and asset optimization, although margin remains slightly negative. On the other end, marketing captured upside from the summer driving season and less severe mobility restriction. Versalis is progressing the excellent performance with positive results, sequentially lower on this quarter due to petrochemical margins normalization and lower plant utilization due to plant maintenance in Brindisi and Mantova.
While performing positively from the economic point of view in Downstream, we continue to enhance and restructure our portfolio of low-carbon technology. In R&M, we started production of sustainable aviation fuel from waste and residues. Sustainable aviation fuel growth potential is huge, as it can significantly contribute to the decarbonization of aviation in the short to medium term. In Versalis, we acquired 100% of Finproject, becoming the Italian leader in the production of special polymers. With the acquisition of Ecoplastic, we are further specializing in the recovery, recycling, and transformation chain of styrenic polymers. In terms of our outlook for 2021, downstream EBIT will be negatively impacted by feedstock and energy cost increase. We expect a yearly EBIT for downstream at around EUR 200 million, but this guidance may be further revised upward based on current market conditions.
Eni has an important plan of growth in biorefinery and biochemical capacity. The structural growth that is expected in bioproducts demand will require a robust and consistent growth of diversified feedstock. In order to secure the supply of our plan, we are developing a network for agro hubs in many countries of upstream presence that will ensure an integrated contribution of biofeedstock to our processes. Leveraging our long-standing relationship with African country, we have recently signed alliance that together with other key countries such as Kazakhstan will contribute to our worldwide agro production target of 0.1-0.8 million tons per year by 2030. Furthermore, this agricultural initiative has a direct positive impact on development of new circular economy models.
In Congo, as an example, we started a pilot project planting castor beans on over 200 hectares of land, not in competition with food. Moving on to our cash flow performance. Our cash flow from operations before working capital for the nine months was strong at EUR 8.1 billion, more than covering our CapEx of EUR 4 billion in the period. For 2021, we expect a cash flow from operations before working capital to be close to EUR 12 billion, with a Brent price at around $70 and slightly negative spread. If the current forward prices are confirmed during the last quarter, we expect to reach a cash flow from operations of around EUR 13 billion.
With yearly CapEx assumed to be EUR 6 billion, we are expecting organic free cash flow at around EUR 6 billion at $70 and EUR 7 billion at current forward prices. The performance registered in 2021 will allow the company to keep leverage at around 28%. To conclude, Eni has continued to advance on the strategic path outlined at the strategic presentation in February. In decarbonization, we issued the first sustainable linked bond in the oil and gas sector. We were promoted to the Track 1 phase of negotiation for CCS project in U.K. With the breakthrough achievement towards plasma confinement in magnetic fusion, we confirm the technology remains at the foundation of our transition model. As a material move to target scope 3 reduction, we launched the IPO of Retail and Renewables business.
With respect to capital discipline, we lowered our upstream CapEx coverage below $35 per barrel. In addition, we increased our shareholder remuneration through dividend, now back at pre-COVID level, and a six months buyback of EUR 400 million that we expected to conclude by year-end. Finally, we are deeply reshaping our company structure to enhance value creation with the current business combination in Angola and the review of the ownership in Vår Energi that will reinforce our growth in Norway. Now, together with Eni top management, we are ready to answer to your questions.
Excuse me. We will now begin the question-and-answer session. As a reminder, star one for questions. The first question comes from Giacomo Romeo of Jefferies. Please go ahead.
Good afternoon. Thank you for taking my question, and congratulations on the great results. I have a couple of questions. First one relates to the renegotiation gain that you discussed regarding impacting GGP in Q4. I just wanted to check whether this gain is gonna be translating entirely into a cash payment. Related to this, whether you are going to see a reduction in your historical sensitivity towards the TTF, PSV spread going forward. The second question relates to the R&R business and whether the extreme prices that we're seeing are potentially impacting you in terms of heightened credit risk, and whether this is a concern from your end.
Like to hear your thoughts on that. Thank you.
Okay. I will leave the first answer to Cristian Signoretto, head of GGP, and then the second one to Alberto Chiarini or Alessandro Della Zoppa for the retail renewables.
Hello. Thanks for the question. On the spread PSV TTF, you are right. In fact, one of the aim of the renegotiation was to clearly change the exposure of our portfolio, reducing substantially the exposure to the spread PSV TTF. This will clearly then change it starting from basically the Q4 of this year. In terms of cash, the agreement is set for receiving part of the benefit, cash benefit I'm saying, next year, and while most of the EBIT is going to be accrued this year.
Okay. For the second question, in terms of the impact of high prices, so far we haven't suffered any drawbacks from high prices, and the reason is that we were fully covered for our deliveries. It is clear that the volume risk can be higher, but we are managing it quite well. In terms of credit risk, so far we haven't seen any real impact, and this is also thanks to the measures of the government that have helped families that could have some difficulties in paying gas and power prices.
Thank you. Very clear.
The next question is from Michele Della Vigna of Goldman Sachs. Please go ahead.
Thank you very much, Francesco. I really had one main question about your cash distribution to shareholders. The flexible dividend strategy has worked very well in this recovery, and it has provided visibility on where the dividend would go at different level of oil prices. Now we are pretty much $20 per barrel above the higher end of that range, which was set at 65. I'm wondering, as you start to think about the further upside case, does it make sense to think more of a continued dividend increase? Or because the dividend yield is already the highest in the sector, it could make sense to shift more towards buyback, and you start to consider further upside to your cash distribution going into next year? If I can throw in a second question, I really want to talk about biofuels.
You have been an early mover there, and it has substantially improved the profitability of the refineries you've shifted into biorefineries in Italy. We are now seeing a lot of competitors starting to also follow through, especially for sustainable aviation fuel. Do you fear that there could be a few years when actually sustainable aviation fuels may be oversupplied on the European market? Thank you.
Thank you, Michele. I will answer to the question about distribution, and then I will leave to Giuseppe Ricci the answer to the biofuel and particularly aviation fuel. In terms of distribution, you are right in saying that clearly we are, let's say, well above our pricing deck for the distribution. But I would say also that it's too early. You know, that once we prepare a distribution policy, we design distribution policy, we look, generally speaking, in a long-term way, with a four-year plan, with a strategic plan, in our hands. We are working on that. Clearly, we have idea. I think that, as you said, this flexible mechanism has a value, has merit.
We have also to understand how this could work in an upside scenario case that clearly one year ago was completely out of sight. I think that is a good comment from your point of view, but we can answer more properly in the coming month, in particular in the next strategy presentation. I leave to Pino.
Thanks, Francesco. About the biofuel, in particular the SAF, the biojet, of course, the competition is growing because there are many announcements of new biorefineries of conversion of existing refinery and biorefinery. One of these is Shell in Holland with a project that is with the same capacity of what we have in Gela, started up two years ago. What we gain is the advantage of technology, the Ecofining technology developed together with the owner of UOP is very strong, very flexible in terms of feedstock and product. In fact, we have a robust plan to grow the production of SAF for aviation.
We expect also an increase of the market because the pressure to the aviation sector to use the SAF as the only way today to decarbonize the aviation transport is a very important point. Waiting for the officialization of the rules by Europe, not only Europe, for the minimum content of SAF in the jet fuel, we are seeing an increased interest in both aviation companies and airport structures to start to use the SAF.
This is very important if you consider that in the world there is a market of, apart from COVID, more than 250 million tons per year of SAF and a trend of growth in the year. At the same time, is under definition the new European rules for the biofuel in the road transport. We expect an increase also in this way because the target of 50%-55% is so strong that in fact the role of biofuel to meet this target is mandatory, and we expect an increase in the obligation for the next decade.
in finally, we will have an increase in the production available, but we will have a strong increase also in the demand.
Thank you.
The next question is from Massimo Bonisoli of Equita. Please go ahead.
Good afternoon, Francesco. Two questions, one regarding Vår Energi. Just to understand better the rationale behind the strategic option on Vår Energi. You mentioned IPO or partial divestment in order to crystallize value. Also, if you can remind us of the dividend distribution on Vår Energi, and what you expect for next year in terms of dividend from Vår Energi. The second question is on Mozambique. If you can refresh us, when do you expect Coral to start up production? Any thoughts on the onshore LNG following the news from ExxonMobil? Thank you.
Okay. Thank you. About the rationale, clearly, Vår Energi is a success story. Being the second player, the second operator in Norway, I think is a value that is not properly recognized, internally in terms of market appreciation, in particular inside Eni. I think also that by having this kind of, let's say, market or value unlock, there will be an opportunity to free more funds, more cash availability for future growth, for more opportunity to expand the business of Vår Energi. Vår Energi has a quite, let's say, successful management team. I think the market appetite for this kind of entity is compelling, is interesting.
I think that from both parties, there is the willingness to disclose the real value inside the company. In terms of distribution, Vår Energi was an excellent distributor of dividends in the past years. We actually collected, including this year, I'm speaking about 100%, almost $3 billion. This year, the expectation is to have around $950 million, 100% again, and to have a last tranche in the last quarter in the range of $260 million. In terms of Mozambique, I leave it to Alessandro Puliti.
Good afternoon. Regarding Coral, we confirm that Coral Sul FLNG will start up in the H2 of next year, 2022. I will say there will be 3.4 million tons per year of LNG that will enter in the market, really at the right time. Regarding Area Four, the updated project and the new FID date will be defined based on the results of the ongoing optimization phase. Also taking into account the evolution of the security situation in the northern parts of Cabo Delgado province in Mozambique.
Very clear. Thank you.
The next question is from Bertrand Hodée of Kepler Cheuvreux. Please go ahead.
Yes, thank you for taking my question. Two, if I may. The first on fusion energy. Commonwealth Fusion Systems, CFS, announced a major breakthrough in September. They have doubled the possible magnetic field using revolutionary magnets. This could pave the way for fusion to become commercially viable by early thirties. I've made some extensive research on this subject, and I'm really excited by what CFS has achieved. First, congratulations for Eni outside the box thinking and vision for taking a stake in CFS back in 2018. However, even if yesterday there was an article in the Financial Times about fusion energy, the press coverage has been quite muted, while the sell side coverage has been quite inexistent. How do you explain that?
Secondly, did you have some discussion since this major breakthrough, either with the Italian government or the Italian Nuclear Agency or other regulatory bodies, on the topic? So that's the first question. The second question is more, I would say, bread and butter. It's can you guide us about what could be the tax rates at Eni in $70+ world, knowing that the tax rates this quarter in Q3 was significantly below expectations?
Yeah, thank you for the question, particularly the question about the CFS. The magnetic fusion, that is clearly a potential breakthrough technology. I agree with you that the from the point of view of the market, in particular from the analyst of the sector, there is still relatively little interest. You capture this news and you make, let's say, a deep analysis on the potential of this technology. I think it's a matter of being acquainted with this kind of technology, new technology, and having, let's say, the progress towards the evolution of the technology coming and becoming reality. You know that we have completed the first phase. That is the test of the magnet.
We are entering the second phase that will bring in 2025 the creation of the pilot of the first reactor in order to prove the continuity and the value of the energy reaction. Having the amount of energy in excess of the amount of energy used, and it is called the SPARC. This, if it will be successful, will open the door for the first commercial reactor that is called the ARC, and will be available if everything is fine within early next decade. There is a quite, let's say, short time to market for a breakthrough technology.
What I can say that out of the reaction inside the analyst group, there is a quite strong interest from investors in taking or participating to the fundraising that the group, the team, the management team of CFS is now performing. I would say that the interest is strong. Clearly, it's not completely visible around all the tables. About the tax rate, it is true that the tax rate in the current environment is extremely low. What we can say is clearly it is low because it is not just a matter of having a $70 world, but it's a matter of having a gas pricing at the level that you know.
What is causing that all the businesses and geographies in EMP, et cetera, in country, which have lower tax rate are becoming more relevant in results contribution. I'm referring to Italy, I'm referring to U.K., and therefore, I'm referring to all the countries in U.S. that generate at a level, let's say, less than average in term of tax rate. Clearly, the gas pricing is one of the factor that is determining this rate. If we will be in a $70 world with the current market environmental pricing, we will have a similar, so below 50-50% tax rate. Otherwise, in a more normalized gas price environment, we will be something between 50%-55%.
Very clear. Thank you.
The next question is from Jason Kenney of Santander. Please go ahead.
Oh, yeah, thanks. Just looking at the guidance for the global gas portfolio, EUR 500 million EBIT for 2021. I know you mentioned earlier that the renegotiation process, most of the EBIT will come in Q4, and the cash may come through next year. I'm just trying to think through cycle what you were budgeting for GGP EBIT, say on average annually through to the period 2025. Can I get a sense of where it might normalize back to in 2022, 2023, 2024? That's my only question. Thanks.
Okay, leave it to Cristian to answer.
Well, thanks for the question. Look, clearly, you know, as we said, the renegotiations, and I would also add the fact that the extreme volatility and level of prices of gas clearly have an effect on the 2021 results. This will clearly also change our expectation for the future plan, because if you remember, we were targeting EUR 800 million free cash flow over the cumulative four years. Clearly, we didn't take into account such evolution of the portfolio of the market. Clearly, we will have an upside in the plan that we will, you know, disclose and analyze better in our next four-year plan.
Maybe just a follow-up, because obviously the nine months sits at about EUR 44 million, so you've got over EUR 450 million coming in the last quarter. What kind of run rate should we be expecting quarter-on-quarter in the 2022 period?
You're asking for a guidance on quarter- by- quarter in 2022?
An annual.
An annual, yes.
I mean, look, as we said, clearly the Q4 result is compounding also some retroactive effect because, as I think we probably explained, these agreements will have some retroactive effect that will clearly manifest the results in Q4. Those elements will not really reappear in 2022. What is going to change instead, as I told you before, is that the exposure to the PSV TTF spread will not be there basically starting from Q4. I mean, as you can imagine this year, that spread has had strong headwinds against our business because, I mean, just to give you a couple of numbers, last year in the first nine months we were having 15 EUR per thousand cubic meter positive spread.
This year in the first, let's say nine months, we had a negative EUR 2 per thousand cubic meter. That has a very negative effect on our accounts, and this will not be there next year just because, I mean, we changed the exposure of the portfolio. I think that will drive the profitability of the next quarters.
Okay, thanks.
The next question is from Jon Rigby of UBS. Please go ahead, sir.
Thank you. Hi. Two questions, but one is just a follow-up to the last question. If it's not the exposure to TTF, PSV
Margin that's driving the underlying earnings from the gas business. What is the input into the calculation that drives that number, just so that we can understand sort of variability going forward? The second question, you talk about the Cote d'Ivoire development being a net zero development. Can you just sort of run me through the difference between what you're gonna be doing there versus, let's say, a conventional offshore project that moves it to being net zero? What are the measures that you are taking so that it can be net zero? Because on the face of it, getting a net zero offshore development in West Africa seems like a remarkable achievement. Thanks.
Again, Cristian and Sandro Puliti for the two questions.
Well, I mean, what's driving the profitability of the business going forward. Basically, the Global Gas & LNG Portfolio takes care of the final part of the value chain of the gas and LNG business. Basically bringing to the market and monetizing the equity gas and LNG, on the one hand, and on the other hand, clearly also the third-party gas and LNG in our portfolio. In the future, I mean, also today, I would say, but in the future especially, this will be driven by two major elements. On the one hand, we have what we call the intrinsic value of the portfolio. Basically, we buy and we sell, and we capture the margin between, you know, say, supply cost and sales cost. That's one element of the business.
The second element, which is becoming, you know, more and more important as we speak because of the volatility of the market, is that we have an array of options in our contracts, logistic time spread options, that we try to optimize every day, you know, with the movement of the market, being it in the gas and being it in the LNG. This will clearly be another relevant part of the profitability, which clearly depends on how far is the range of volatility and how fast this will change. We can say that in the last, I would say few months, this has been extreme. I think this is under the eyes of everybody.
In the future, it's difficult to say, but, you know, there are signs that this volatility is probably here to stay given the strong, let's say, tight balance between demand and supply in gas and LNG, at least until the next big wave of LNG production will come on stream with Qatar.
Just to follow up. Sorry. Can I think of this as just a change in contract structure to remove PSV as a proxy for your cost of gas, effectively? Is that it's not proving to be a good input into calculating the cost of gas to get you the appropriate margin for the work that you do in distributing gas to your customers. Is that a fair way of thinking about it?
It is.
Yeah. Thank you.
Okay. Regarding Ivory Coast development, what we meant is that we will have a scope one and two net zero development in Ivory Coast. This is based by implementing a number of decarbonization initiatives such as REDD+ initiative, so forestry initiatives in the country with the programs for the protection of primary forest and also including development of renewable energy in the country to supplement the gas production and to offset the emissions of the offshore development.
Is there anything intrinsic to the actual development that you're doing, sort of, I don't know, you know, the way that you're running the generators or supplying the power or whatever?
Clearly, the development will account for the state-of-the-art and the best available technologies to reduce actual emissions and increase efficiency of the energy utilization of the offshore facilities.
Okay. Thank you.
The next question is from Ellis Skinner of JP Morgan. Please go ahead.
Good afternoon, Francesco and everyone. This is Ellis Skinner from the J.P. Morgan Energy team. Two questions if I may. First, wanted to change tack and look at the...
Adriano Alfani for the chemicals, and then
Yeah, thanks for your question. As you said, the first nine months of Versalis performance were extremely positive, although we have been negatively impacted by low asset utilization. The low asset utilization that you described for Q3 were driven by two major effects. One, some planned outages that we had in the biggest cracking plant in Brindisi, and also some upgrades that we made in the styrenics unit in Mantova in order to change the mix of product and to go in one of the directions we want to move the portfolio in terms of specialization. We spent a lot of money in order to upgrade the plant and to invest in diversifying the mix. This explains why you have seen for Q3 a low asset utilization.
The second driver of the low asset utilization was also the fact that we experienced at the end of August some unplanned event, especially in the CCS area, and we lost a couple of weeks of production that impacted the production. Going to the second part of your question about how gas, or let's say the energy could impact the performance of the business, clearly we already see some impact in the Q4 because the cost impact of electricity and gas in the chemical sector is almost double, so is in Q4. We see double cost compared to the Q3, and it's having some impact, not in terms of the volume that we can sell, but of course in terms of profitability. The market today is not paying for cost of utilities.
It's something that all industry is looking around, and this is something that also in term of the negotiation for next year that we are starting just in these weeks, like every year, we are looking to reflect some of the utilities cost, or at least the change volatility of utility costs, read as gas and energy, in the price formula, in other formula, in order to mitigate the impact on profitability for 2022. Clearly, as you can imagine, it's not an easy conversation you're gonna have in the value chain, but it's something that we start to work on. If the volatility remains as, or let's say the trajectory remain as we see now, we might see some volatility in term of profitability in the chemical sector for 2022 that we'll have to manage.
Okay, in terms of growth for the retail customers, we have to differentiate Italy and abroad. In Italy, we are incumbent in the gas, and we are growing in power more than what we are decreasing customers in gas. This is the way we are trying to grow. We are really targeting power customers. In terms of abroad, we are a packer in a way, so we have very lean organizations. Just to give you an example, in France, we have almost doubled our customer base in the last four years, and we are now almost 1.4 million customers. In Greece, we recently entered into the power market, and in Spain with Aldro is a new acquisition, and we are confident that we can grow.
Impact of high prices, of course, is a reduction of new customers, prospects. In reality, this is for all the players, which basically means that today the churn rate is lower because every customer that has a fixed price offer has no incentive to switch to a new price with the current high price base. This is, as I say, for all the competitors, and so the trend for us is pretty much the same. Less churn, less acquisition, but overall a positive balance.
Well, thanks gentlemen.
The next question is from Irene Himona of Société Générale. Please go ahead.
Thank you. Good afternoon. I have two questions, please. The first one, back to the topic of cost inflation, aside of the pressure on downstream and chemical margins, can you talk, Francesco, perhaps about any cost inflation pressures in your upstream, please? So what are you experiencing? Are you perhaps protected for a period by your contracts with the suppliers? How should we think about the topic, basically? My second question is on capital allocation. You're looking at two potential IPOs now, and with those, Eni will raise quite a bit of capital. How should we think about the potential uses of that capital, please? What are your priorities for that cash? Thank you.
I will leave the first question to Alessandro, then I come back about the capital allocation.
Okay, good afternoon. Regarding cost and possible cost increase, certainly the pressure on raw material is something that we are starting to see on the market.
Especially for production facilities, clearly where iron prices are, and metal and steel are more important. On the other end, we have to say that our upstream currently ongoing projects are sanctioned. They are under EPC contracts with basically prices that are fixed and already awarded. We do not expect, in the projects going on, this year and next year, basically, a relevant impact due to the raw material price fluctuations. For the future, certainly we are gearing up with the appropriate procurement strategy, trying to limit to the bare minimum the impact of those possible price increases.
About the allocation, clearly, you are right that next year with the different an IPO, the business combination, the valorization of Vår, clearly, there will be a quite material contribution of cash. What we did this year, I think that is the best way to measure how we will react next year. This year, we were substantially able to delever the company, to increase the distribution policy to the level that we had before COVID, not only in terms of dividend, but also with a buyback that we are actually executing in almost four months. We had also speeded up in the transition, in the transformation of the company, transformation of the business.
The answer is, we will continue next year to pursue these three different direction. We will reorganize the company, improve all the portfolio as much as we can, as fast as we can, to capture the evolution of the market. On the other side, we will continue to keep an attractive distribution policy, and we will deleverage in order to further reinforce our balance sheet.
Thanks so much.
The next question is from Biraj Borkhataria of RBC. Please go ahead.
Hi, thanks for taking my question. Two please. The first one, I was just wondering if you could bridge from the prior cash flow guidance for 2021 to the updated guidance. Because I heard earlier in the call you mentioned that the gas renegotiating cash was a 2022 event. I was wondering what's changed for this year or Q4 of this year. The second question is just the clarification on the renewables IPO. I just wanted to be clear, are you looking to sell down your stake and receive cash, or are you looking to raise equity within that business unit as part of the IPO? Thank you.
About the bridge or the calculation for the CFFO guidance, you know that we presented a guidance that was above EUR 11 billion, exactly was close to EUR 12 billion in a $70 world. The difference clearly is the gas. The gas is the main source of the change. There are a lot of moving parts. There are the term, negative term that is prolonged, et cetera. The major contributor in this jump of almost EUR 1 billion at the same level of oil price, or almost the same level of oil price, is substantially the gas pricing.
Similarly, the next step, the next change in the guidance until the end of the year is based on the assumption of a higher oil price, is at the end of the day, almost $3 on average per year. That is equivalent of $400-$500 million. There is also again, quite a material step up in gas pricing that explain this additional contribution. Sorry, the other question was about the renewables? The IPO? What?
Yes.
Okay. It is about the clearly what we are working on that really, and I would recommend to postpone all this question in the next capital market day. As a general comment, we target to grow in the market with a company that is substantially free of debt, able to raise its debt according with its balance sheet. It is a company that has an EBITDA that is quite material. Therefore, we will have, according with our information, we have the preliminary information that we collected from the banks, the capability to raise from 3 to 4x the EBITDA. We are speaking about EUR 3 billion-EUR 4 billion along the period, eventually EUR 5 billion at the end of the four-year plan. That is the scope, the logic of.
Therefore, about the issuing of shares, et cetera, is something we decide, but you understand that there is no need to have a strong capitalization of the new company.
Okay. Thank you.
The next question is from Alastair Syme of Citi. Please go ahead.
Hi, Francesco. S&P still have a negative outlook on the debt, and they have done for quite a while. I'm sure it doesn't impact where you price your bonds, but at the same time, I'm sure you don't want to be downgraded. Maybe just talk about what you think you need to do to get that changed.
Secondly, do you have any observations on the strength of the upstream M&A market as you look towards crystallizing this value in Vale and potentially also Angola? You know, we seem to have seen some recent deals that have gone through quite cheaply. I'm just wondering if you're seeing anything different out there. Thank you.
Thank you. No, about the Standard & Poor's rating, actually today there was a positive rating. The negative outlook was raised to, let's say, neutral outlook. The company is recognizing that the action taken in these years and the financial flexibility were important of the balance sheet were successful. I think this is positive, a positive sign for us. This will help also to reducing the future of the cost, the cost of debt. On the other side, you said that about the environment in term of M&A, we are very active in M&A. Particularly, we're working on, again, in M&A that is trying to extract value from our portfolio. We have different, let me say, processes going.
I think that the market reaction clearly is subject to the quality of the asset that you are presenting to the market. There is a positive market. There is probably not the same actors or players that you are used to having this kind of market, but in terms of player, independent player, infrastructure funds, and private equity player, there is an active market.
Thank you. Thank you for the time you updated on the S&P rating. Thank you.
The next question is from Lucas Herrmann of Exane. Please go ahead.
Cesco, thanks very much, and thanks for today's presentation. Can I just go back to Angola and there's obviously been some comments on the level of debt that you're looking to raise, which I think indicated, you know, something of the order of $2 billion. I wonder if you can make any comments on that and what kind of, you know, rates of interest debt in that market on oil assets, you know, might attract. And beyond that, just thinking about going back to the LNG business, forgive my confusion, the improvement, how much of the improvement you're talking about through the final quarter of this year is a consequence of renegotiation?
How much of it is reflective of, you know, what actually should be a much better market for your opportunities, as you put it, or, you know, arbitrage of the LNG volumes that, you know, are coming out of your business? Thanks very much.
Yes. About the business combination in Angola, you know that there are these comments related to potential interest in terms of bank capability in the range between EUR 2 billion-EUR 2.5 billion. The interest clearly it's something that have to be defined at the time you do the raising of the debt. I would say it is too early now to know what is the cost of capital for this debt. I think this is what we can give you is the appetite and the size of the financing system. In terms of the other question, I will pass the ball to Cristian.
Hello. Thanks for the question. I think I'd say that you know most of the improved results you know are linked to the one-off upsides deriving from the contract renegotiations. I would say also the extreme condition of the gas and LNG markets that you know as you can see starting from September experienced record price levels across the globe, which if you want triggered the opportunity for us to you know use options that were deeply out of the money before that became in the money with these level of prices. I mean to. If I have to let's say to give you an idea, I would say that around probably 30% would be structural that is linked to the fact that we have renegotiated the contract.
We have shied away from risk that we had before. Probably 60%-70% instead is linked to, you know, one-off opportunities that we grab linked to the renegotiations, as I said, or linked to this extreme level of prices that allowed us to trigger such out of the money options.
Sorry, Cesco, just going back to Angola. Can you say anything about progress and potential timing over and above what you have?
I would say that substantially the teams are working up. I think there is quite a positive view, and we are very close in the discussion. You know that as we mentioned also during the presentation, it is something that is expected to be completed. When I'm speaking about completed, I'm also referring to the fact that you have to collect the authority approval, et cetera. Early next year. It means that we are targeting for a signature, a completion of the shareholder agreement between the two companies within the end of the year.
Would we expect any dividend payout at around that time or subsequent to that event? Much the same way it was with the case with BP.
Yes. I think that we have to, first of all, to have the company established. It will clearly, as I mentioned, happen next year. Once it will be established, there will be also the capability to raise funds, and the company will decide its financial plans, including its distribution policy.
Thank you very much.
The next question is from Mehdi Ennebati of Bank of America. Please go ahead.
Hi. Good afternoon all, and thanks for taking my question. Congratulations for this quite impressive figures. Two questions please on my side. First one on your cash flow from operation, which was pretty strong. If I look at, let's say, the differential between, or the spread between, the tax that you paid and the tax that you announced, I can see that the spread, you know, has been increasing. In fact, you know, the tax payment did not really increase in Q3 compared to Q2, despite the much higher profitability. My question is, should I expect the kind of catch up in the coming quarter, meaning that your tax payment, you know, will accelerate faster than the tax you declare in the P&L?
Meaning that there will be a negative impact on your cash flow from operation. You also highlighted on your reports that you benefited from a relatively high amount of trade receivables this quarter. I wanted to know, did this impact your working capital or did this impact your cash flow from operation, excluding the working capital? The second question is about the current LNG price environment. When Damietta LNG started, you told us that you will be able to sell the LNG where they want at spot price of the gas. I was expecting Damietta, you know, to take advantage of the currently strong LNG price environment. Can you tell us why, or first, if you benefited from Damietta exporting LNG.
Can you also tell us if you expect Damietta profitability to increase given that the LNG prices are currently higher than on average in the past quarter? Thank you.
Okay. About the tax rate, let's say, fluctuation within the third and last quarter and the next quarter, as I mentioned, the tax rate is impacted by the mix of our results, and particularly by the fact that now there is a significant and material contribution of value coming from certain countries and certain business with low tax rate. There is no shift or factor related to postponement of payment that will impact cash flow next quarter. Everything is substantially based on traditional tax payment. It will depend clearly on the capability of this business component to continue to generate value as in the last in the Q3 .
About the working capital, clearly it is also affected, mainly affected by the value of stocks and receivables. Clearly, in an environment of prices that is growing, you would see at a similar quantity level an increase of your working capital. This clearly will impact your cash flow from operation post working capital. About Damietta, I leave again to Cristian for the answer.
Thanks for the question. Let me start from maybe a portfolio type of consideration. In 2021, the vast majority of our LNG cargoes are either sold under term agreements, which are substantially not affected by the current level of spot prices, or are directly hedged with our customer base in Europe. We have some leverage, though, from the optimization of the portfolio, especially by rerouting our FOB cargoes to capture the arbitrage between the markets. Damietta clearly is part of this portfolio, because I mean, being an FOB contract, we can divert the cargoes where the market is asking them to pay higher price.
From 2022 onwards, we have a growing exposure to the spot market that clearly we will take into account in our, let's say, marketing strategy, including also from Damietta.
Perfect. Thank you very much.
The next question is from Henry Tarr from Berenberg. Please go ahead.
Hi there, and thanks for taking my questions. Two please. One just on CapEx looking into 2022. So with commodity prices where they are, is there a temptation to start looking at slightly higher CapEx in some of the E&P areas? And do you have sort of short cycle options that you're looking at there? You know, would you expect to see CapEx start to increase a little bit in 2022? And then just secondly, I think you talked about the feedstock for the sustainable aviation fuel in Africa. I maybe missed it. Were you saying castor oil in the Congo? Is that right?
Are you hoping to source all of your sort of raw materials in that way? Perhaps just a little bit more color around how that's not being, you know, the land there isn't being used for food. Great. That'll be great.
Okay. About CapEx, you know that we have a plan. Actually, we are quite disciplined in all the period that we passed through since 2014. Remember, we cut CapEx, we kept CapEx flat. We will not follow the price volatility. We have a plan. In our plan, we are assuming to have a CapEx of around EUR 5 billion last year, EUR 6 billion this year. It is a rebound, clearly, and EUR 7 billion as a, let's say, steady level in all our business to perform the transformation, clearly. That is substantially the level that we are targeting, and we are not clearly, let's say, changing the guidance. We will continue to be disciplined on investment. In terms of aviation fuel?
No, about the feedstock for the SAF, for the fuel, the sustainable aviation fuel, you have to take into account that we are considering also western residue as feedstock for this particular fuel. In fact, our early production is coming from UCO, used cooking oil. The development of feedstock that we are foreseeing in Africa and other countries, taking our knowledge and presence in these countries is based on both agriculture, not in competition for food, and western residue collections.
Okay, thanks.
The last question is from Oswald Clint of Bernstein. Please go ahead, sir.
Oswald, thank you. Yeah, perhaps just another one on the upstream. Natural gas realizations in the upstream, they seem particularly strong, I think, at least relative to what I was expecting. I just wondered anything helping those? I mean, do you let any of the global gas business price strength accrue back into the upstream through transfer pricing? Or anything that explains that if I am correct there. And then secondly, I just wanted to ask, I mean, all your metrics around ESG are pretty impressive, MSCI, Euronext, Sustainalytics. And I wanted to ask if you could tell us, are you seeing an increase in ESG investors into your shareholder base? I mean, down in Spain, Repsol would say they have 32% in the shareholder base today, and the industry is around 15%.
I'm just curious if you have good knowledge or are seeing increases in that type of investor into your shareholder base. Thank you.
Sure. Sure, Oswald. I think that about the gas realization, the gas increase, I would say that is mainly to the fact that the spot pricing increase, PSV, and clearly NBP price are the main reason for this jump. There is no other explanation. The component of oil-linked reference within the spot formula is existing, but is not the major factor that explain the change. About ESG, actually, I think that is difficult to say what is ESG. Once you have many large fund, then you can consider this fund ESG because practically almost all the investors have an ESG component. We haven't done this kind of split. I think that each company will do the split, will go in different metrics.
There is no benchmark, including with different degree of flexibility the ESG component within the investor group. I would say that what we can see is that Eni is top-ranked in all various ESG metrics, has a solid decarbonization plan, and we were the first oil and gas company to issue a sustainable linked bond. This means that in terms of ESG, analysts from outside and bondholders are buying Eni tools. That is, for me, the most important driver or KPI I'm following.
That's obviously fantastic. Thank you, Francesco.
Mr. Gattei, do you have any closing remarks, sir?
No. Thank you. Thank you to all. We have completed the conference call. If you have any additional questions, we are available with our investor relations team. Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.