Good afternoon, ladies and gentlemen, and welcome to the Eni's 2023 First Quarter Results Conference Call hosted by Mr. Francesco Gattei, Chief Executive Officer. For the duration of the call, you will be in listen-only mode. However, at the end of the call, you'll have the opportunity to ask questions by pressing star and one on your telephone. I am now handing you over to your hosts to begin today's call. Thank you.
Thank you. Good afternoon, welcome to Eni 2023 First Quarter Conference Call. I am sure you have already had the chance to read our press release. It confirms another excellent set of results, recording a quarter where we have made strong operating, strategic, and financial progress. Adjusted net profit was up 17% on the quarter, fourth quarter 2022 to EUR 2.9 billion, despite an 8% fall in the oil price quarter-over-quarter and a much lower gas price. In fact, we have also significantly offset the effect of a 20% fall in the crude oil price, a near halving of the spot gas price in our year-over-year comparison, down just 11%. This is clear evidence of how resilient our upstream and the increasing balancing contribution from across the business segments.
Our four-quarter rolling return on capital employed is 21%. Within the Natural Resources, oil and gas production was in the guided range for the full year, an encouraging start given our expectation of rising volumes in the second half of 2023. First quarter was also solid quarter for exploration. We discovered results of around 200 million BOE. GGP outstanding quarter, a record in the last decade, reflects in part its seasonality, but also confirms our expectation of another strong full year. It further highlights the improvement to both the quality and scale of profitability in our gas and LNG operation that we have delivered even amid the loss of Russian supply. In Energy Evolution, downstream results were partially held back by high level of planner refinery turnaround in Italy.
It is worldwide to highlight that the underlying performance of the business, including the contribution from ADNOC, is in line with our expectation for the full year, recording over EUR 300 million of pro -forma EBIT. I hope you will also have also picked up our additional disclosure on sustainable mobility results. Meanwhile, Plenitude continue to perform operationally and financially along the growth trajectory we have mapped out. Underlying cash flow from operation was notably good in the quarter at EUR 5.3 billion, only 6% lower year-on-year and almost 30% up versus the last quarter of 2022. While we saw seasonal absorption into working capital and other shorter-term obligation and timing difference, we still generated free cash flow after CapEx consistent with our full year guidance. Net debt flat on the fourth quarter remains at an historically low level.
At our capital market update in February, we emphasized both the financial resilience of the business and its flexibility. The importance of these two features is obvious given the degree of volatility seen in the scenario, even in the first month of 2023. We have a strong and flexible balance sheet with high level of liquidity. We retain option and flexibility in our investment program that ensures we can respond to changing condition as we judge appropriate. The positive news is also that in the first quarter, we have outperformed on all of the underlying key metrics we set ourselves, confirming the quality of the business. The next three slides provide some analysis for you on today results. Breaking down our Q1 on slide four reveals a very resilient level of profitability in E&P, as well as record EBIT from GGP.
Downstream was a less significant contributor this quarter, while Plenitude growth is being delivered even amid challenging market. We are delivering our satellite model strategy, and the effect can be seen in the more important contribution from associates. Our tax rate of 41% is up slightly year-over-year, reflecting the lower oil price and the fact, I remind you, that we take U.K. windfall taxes into recurring results. Slide five shows the sequential performance, and you can see our volumes and performance improvement more than offset the scenario. GGP delivered record EBIT capturing value from market volatility and our asset and contractual position. In the Downstream, the scenario was an headwind, as was the impact of the turnaround activity. Other elements of the business, including bio, marketing, and trading, held up well.
Associate income, an increasing important contributor to our result, was softer due to weaker scenario and lower dividend income from smaller affiliates. Finally, looking through the lens of cash on slide six, our strong underlying earning combined with dividend income delivered over EUR 5 billion of cash flow from operation, funding working capital, and other short-term cash commitment. Our CapEx and dividend, net investment portfolio, plus other capital items, and leading to a leverage of 14%, virtually flat on the previous quarter and well within our 10%-20% target range. I want to now look at the year to date in the context of the key operational, financial, and strategic features of our recent February capital market update. In the current market context, it is critical we deliver on both our operational and financial objective, but also make progress along our consistent and clearly stated strategic path.
In terms of operation and financial performance, we are expecting to grow upstream production by 3%- 4% over 2023-2026. In the quarter, production was flat year-on-year. Up 2.4% sequentially, ending the guided range for 2023. This is an encouraging inflation after the challenges we faced in 2022. Of note in this quarter was the performance of Algeria and the ramping up to plateau gas production of our operation at Coral South in Mozambique. GGP record quarterly results emphasize how the business that is increasingly integrated with the upstream has swiftly reacted to the supply disruption and taking advantage of the new realities of the gas and LNG markets. Given the drop in European hub prices in the quarter, it is important to reiterate that this is not a business that is solely dependent on the prevailing gas price.
Our Q1 results confirm the strong 2023 outlook we have laid out and highlight the material upside potential in the right condition. In R&M, the first quarter was a quarter with a number of important European refinery units down for scheduled maintenance. Sustainable mobility, trading, and our ADNOC affiliate were robust, and this business has also structurally shifted in profitability terms. Despite a lower oil price and lower gas price than planned in Q1, and in Q1 and a stronger euro, we have made a good start in delivering our EBIT and cash flow from operation guidance for the year. In term of our strategy, we can also point to continuing progress in line with our key teams. Time to market is a significant point of strategic differentiation for Eni.
In E&P, this is driven by our leading exploration activity integrated in our fast-track development approach. We are targeting the discovery of 700 million barrel of resources in 2023. The year has got off to an encouraging start with 200 million barrel of oil discovered in the first quarter. This includes contribution from near field discovery in Egypt, Algeria, and Norway, and significant new discovery in Egypt, Cyprus, and Mexico. In early April, we announced the sail away of the FPSO Firenze from Dubai, en route for the Baleine field offshore Côte d'Ivoire, with a scheduled production start-up of June 2023, less than two years from discovery and less than 18 months after the FID. As you know, we are targeting a shift in our production mix to 60% gas by 2030.
The successful ramp up of Coral, the agreement to develop the A&E structures in Libya, and the new Eastern Mediterranean discovery, for instance, are all consistent with that objective. Our Energy Evolution division is developing a portfolio of solution to meet the decarbonizing need of our customers. In February, we announced the agreement of a 50/50 joint venture with PBF Energy for 1.1 million tons per year of biorefinery in Louisiana, contributing to the raised more than 3 million tons 2025 biorefinery target. Versalis confirmed this morning the acquisition of the remaining 64% of Novamont, a leader in the chemistry of biodegradable and compostable bioplastics. M&A activity will remain a feature of Eni's strategy. You should expect us to make investment and acquisition that further our strategy and deliver upside to shareholder.
Our PBF and Novamont transaction demonstrate this, as indeed does the Algerian asset purchase from BP we closed in the quarter. You should also expect us to be rigorous in addressing our tail and reshaping the portfolio to realize value. For example, our sale of a minority pipeline stake to Snam completed in January. Overall, we expect this activity to be a net EUR 1 billion positive over the four-year plan. A key features of our 2023 capital market day was the introduction of an enhanced and simplified distribution policy. On the 10th of May, shareholder will be asked to vote to approve a buyback of up to EUR 3.5 billion and a proposed EUR 0.94 per share 2023 dividend.
Having covered first quarter performance and context, let's move to updating guidance for the full year. In the short term, we can help with some pointers for the second quarter. We expect that the upstream production will be in the range of 1.6 MMbpd as a result of plant turnaround activity concentrated in the quarter, with production fully recovered and growing from the third quarter. We expect GGP second quarter EBIT to be much lower than in the first quarter, consistent with the normal seasonality of this business. Conversely, in R&M, second quarter and third quarter are normally stronger for our marketing business, and the second quarter will see lower plant turnaround at our plants than either the fourth quarter 2022 and the first quarter 2023.
Assuming our buyback receive approval at the AGM, we expect to begin repurchases shortly after. I would also add that we expect to pay our 2023 windfall tax in Italy at the end of the second quarter, amounting to around EUR 500 million. We anticipate closing both the PBF and Novamont transaction in the second half of 2023. In term of updating our full year guidance, we are updating our guidance with a scenario of a Brent price of $85 per barrel, unchanged from February. As SERM, the refining margin of $8 versus the $7 originally planned, and a lower PSV gas price of EUR 50 MWh and a stronger euro at $1.08.
We can confirm our Natural Resources division outlook for production in the range of 1.63-1.67 million barrel per day, and discover resource of 700 million barrel. We now expect the GGP adjusted EBIT to be in the upper range of the EUR 1.7 billion-EUR 2.2 billion communicated in February, exceeding EUR 2 billion. We confirm full-year downstream pro forma EBIT at EUR 1 billion-EUR 1.1 billion, in line with prior guidance at a constant exchange rate scenario, which includes the contribution for sustainable mobility of more than EUR 0.9 billion of EBITDA, better than planned. With a lower natural gas scenario and a stronger euro under our updated scenario, we expect to be able to generate EBIT of EUR 12 billion and cash flow from operation of over EUR 16 billion.
This represent an improvement versus the original guidance at the same scenario. CapEx is now expected to be around EUR 9.2 billion, lower than originally planned, incorporating the effect of the euro dollar change. We also retain the potential from continued optimization effort and flexibility to further reduce spend. We confirm our buyback plan of EUR 2.2 billion and the dividend increase to EUR 0.94 per share from EUR 0.88. That will imply a cash flow from operation distribution in excess of 30%, but is maintained by virtue of the considerable flexibility in our CapEx and balance sheet that we retain. With that, I conclude my remarks, and along with Eni top management team, I look forward to your question.
Ladies and gentlemen, we will now begin the question and answer session. As a reminder, please press star one for any questions. The first question comes from Martijn Rats of Morgan Stanley.
Yeah. Hi. Hello. I was hoping you could answer two questions for me. First of all, I was hoping you could share some of your thoughts on the current state of the European gas market. Last year, Eni did a lot, of course, to alleviate some of the pressures, but perhaps maybe in retrospect, almost too successfully so. I remember back then there was a sort of plan for 20 BCM. I was wondering what the sort of the status of the various components of that plan was and also more broadly where you think we are with sort of supply, demand, and the outlook for inventory build over the summer.
The second questions that I wanted to ask you is perhaps a little bit more technical, but I noticed there was quite a large special item in GGP of about EUR 1.1 billion related to derivative contracts. I have to say I found the description slightly difficult to unearth. I'm just hoping you could say a few words about what that is and how that has actually sort of impacted the results that we're looking at.
Okay. I pass the answer about the first question to Christian Signoretto, Head of GGP.
When it comes to the European gas market, clearly, as you were pointing to the market this summer is much different from the market of last summer. In the sense that we enter into the summer with much higher storage capacity field. It's basically 30 BCM more overall than last year. Clearly this will ease a bit of a pressure on the flat price because of the situation. On top of that, we are still seeing let's say new demand in Asia to materialize. We have seen Indians and let's say the Middle Eastern countries being back in the market with these prices.
We still see the Chinese a bit shy in entering to the market, probably because we are waiting also the economy to pick up. I would say all in all, summer, which should be less critical and tight than last year, clearly. When it comes to winter, it's a bit more difficult to call because the weather in Europe, but also the weather across the globe could change and could have an effect on the overall, let's say, situation. We expect surely more volatility in the winter than this summer. When it comes to instead our plan to say to replace the Russian gas, I think we are on track to deliver the 50% replacement by 2022, 2023 and then 80% starting from 2023, 2024.
We are leveraging clearly on our, let's say, sources, equity sources. Algeria is going to take a big part of this, let's say, substitution. LNG will play the other big part, as you see, you know we are developing our projects in Congo, in Egypt, in Indonesia, and we are aligning up also our midstream capabilities of shipping, regas capacity. We are getting ready for that to happen.
Okay. About the big special item that you were referring to is related clearly to hedge position that compare with the physical position and cannot be, let's say, qualified for hedge accounting in the reporting, in the reported results. This is just a typical adjustment that we provide in all quarter related to that specific treatment according with the accounting principle. Eventually, I suggest that you put, let's say, you enter in contact with our investor relations team for the details that you look for.
Wonderful. That was very helpful. Thank you.
The next question is from Oswald Clint of Bernstein.
Yes, good afternoon. Thank you. Yeah, perhaps I could go back to GGP and, given Christian's there. Just in the quarter, the obviously the record gas result. I wonder if you could perhaps break that into contributions, perhaps from time spreads or geographical spreads and, you know, European-centered profit versus LNG or LNG diversions, is really the first one. Perhaps, Christian, if there's a note to your deal into Slovakia here. Is there something strategically you're thinking about pushing and expanding sales into Eastern Europe now? That's the first question. Second question I wanted to ask around, Francesco, you said, structural improvement in the profitability of some of the downstream businesses.
Refining, refining, I'm just looking at all these new announcements on biofuels to Saipem, to the transportation logistic companies in Italy and thinking PBF is coming. You know, just thinking about margins or is there some way you can help us think about, you know, the, the margin here for renewable diesel relative to your legacy diesel or some way to think about the profit contribution that might be coming through as you expand the volumes? Thank you.
Okay. I leave the first question to Christian and the second one to Pino Ricci, who is connected by phone.
To give a bit more color on the Q1 result, I mean, we entered into the first quarter with the most position, let's say, secured, locked, in terms of, let's say, margin. We expected already a good first quarter. Clearly what happened during the quarter in which the prices actually came down and the spreads between hubs, let's say, you know, open up, this allowed us to basically take advantage of the optionality that we have in our contract because in the end, we could, let's say avoid, we could substitute cheap gas from the market with maybe more expensive gas from our positions that we had, let's say locked.
This actually contributed quite a lot to the bid. The second element clearly also the geographical spreads. You know, we were still, and we are still doing that operation. We are still bringing gas from, for example, from Spain to Italy using, let's say, shipping LNG logistic, which is actually still paying off because the spreads between the markets are still, say, valuable. I mean, in general, there has been also, you know, very much volatile environment between, if you think about it, between Brent and gas pricing. These movements across the three months allowed us to again capture value from the movements.
I would say clearly the bid was driven by the trading environment that allowed us to do that during these swing movements. On the Eastern Europe, I clearly what's happening in Europe is that the flows are changing dramatically. The flows used to come from east to west, and now this is actually changing from south to north to east, from north to east as well. There are surely opportunities in those countries to be seized in order to monetize our portfolio. I would surely look at the Eastern European market as an opportunity market to where to monetize our portfolio.
Okay, Pino.
Yes, Pino Ricci speaking. About the margin of fuels. Of course, the margin of biodiesel is much higher than the margin of traditional product. It is expected to grow also in the future because the demand of biofuels is growing and is expected to grow very much in the next few years. Because the request of decarbonization in a different market, including the U.S. market, where we are entering now, and because of the start of the SAF market, the aviation fuel.
In our position, the traditional refinery, apart from the period of the war, with the margin very high, in Europe, in perspective, could not be so high because the market is decreasing, with the consumption is decreasing. Instead, vice versa, the bio is increasing. For this reason, we are investing in bio, both in Europe and U.S., and in the future also we expect in the Far East, mainly for the SAF.
Okay, very good. Thank you very much.
Thank you.
The next question is from Alessandro Pozzi of Mediobanca.
Thank you for taking my questions. I have three. I'm just looking at the new CFFO guidance, and if we apply the sensitivities, the reduction is smaller than expected. Of course, you had the GGP may potentially contributing, but I was wondering if you can maybe give us some color on the improved underlying performance from a cash flow perspective. Also if you can confirm what was the sensitivity on gas in terms of CFFO. The second question is on the new discoveries. When I go back to the slide, at the end of February, I don't think there is the Cyprus there.
I was wondering whether maybe there could be new gas opportunity, like in Cyprus or potentially Australia as well, that could come into play during the 2023-2026 plan. Also the final question is on Livorno, and I was wondering if you can give us an update there as well. Thank you.
Alessandro, I will answer on the first one related to the reconciliation of the guidance that we provided in Capital Market Day. As you have correctly mentioned, that the cash flow from variation is actually now an improvement versus the original guidance. If you take into account of the revision of two major factors that are that were changed. One is the gas price that was substantially halved from EUR 90 per MWh to EUR 50 MWh . The other one is the foreign change rate between EUR and USD, that is has moved from 1.03 to 1.08. That has substantially generated in term of cash flow from operation, and in part according with the sensitivity we provided to you, of EUR 1.4 billion negative related to the price of the gas and EUR 0.7 related to the exchange rate.
We should have expected a reduction of EUR 2 billion, while actually we have seen just a EUR 1 billion effect. We are substantially improving our original guidance by almost EUR 1 billion. Same range of changes is also in term of EBIT. EBIT was planned to be EUR 13 billion. According with this data, should have been EUR 11 billion, while we are announcing a guidance of EUR 12 billion. I leave about the Cyprus discovery, the question to Aldo Napolitano, who is the head of exploration, and for Livorno, I will return the line to Pino.
Yes, about the volumes in the first quarter. Thank you for the opportunity to give a clarification. Actually, it's just a technicality. The last exploration well we drilled in Cyprus ended operations toward the end of the year, in the Christmas period. There's of course, the need for time, some time in order to assess the actually recoverable volumes from the discovery. The allocation of the volumes enter into the first quarter. It's always a rolling process. For example, in the discovery this quarter, you see, for example, a discovery in Congo. Sorry, yes, in Congo. We are assessing the recoverable resources. These volumes instead will enter into the second quarter.
The volumes in Cyprus, have been booked as a reserves now?
Not as reserves, but, as potentially recoverable resources, of course, subject to the definition then of a development plan. At that point they will enter into reserves.
Okay. Any timeline for potential FID in Cyprus? Maybe 2024?
We are working on this, with the joint venture, so likely next year we could have an FID.
All right. Thank you.
Thank you.
Pino, Livorno.
Okay. About Livorno, the lubricant refinery Livorno will be maintenance in this quarter. This is a short refinery. Our strategy was to anticipate the more complicated maintenance in first quarter to gain the possibility to use the maximum capability during the summer period. Instead, Livorno that cover the market of lubricant will be in maintenance this quarter. We are continuing the process, the project for the transformation in biorefinery. We expect to be ready to take the FID during the summer or early in the autumn.
Depending to the fact that now also in Italy, the market of HVO, hydrogenated vegetable oil in pure mode is growing, also because it's mandatory and the mandatory quantity will increase year by years up to 1 million tons per year. is a fantastic opportunity to convert another re-refinery, traditional refinery, derisking the traditional refinery in Italy in the mid and long time.
What will be the throughput of the HVO from Livorno?
On the market, of the Italian and European market. The production capacity is 500,000 tons per year.
Okay.
This is the overall capacity. The plant, will be, designed to be revamped in the next future also to produce biojet, the SAF. We waited, to invest also in this, in this production because, we are waiting to the growing on the market. Recently, European Union, decided for the mandatory SAF by 2025. The direction is confirmed.
Okay. Thank you.
The next question is from Biraj Borkhataria of Royal Bank of Canada.
Hi there. Thanks for taking my questions. Two questions please. The first one is just on Azule. Obviously it's broken out to as an associate now. I was wondering if you could have any given information on the timing of the dividends from that associate to the parent, just so we can model the cash flow. The second question is on Egypt and LNG. Just looking at some of the data on Damietta, it looks like it's producing or exporting consistently close to or closer to full capacity than it has in the past. I know in the summers, sometimes the LNG exports from Egypt get curtailed.
Do you expect that to be the case this year or do you think the domestic gas market is well supplied enough that you can continue to export at close to capacity? Thank you.
Okay. On Azule, it is a quarterly dividend. I will leave then to Guido Brusco, that is the Chief Operating Officer of Natural Resources for the answer about Damietta.
Yeah, indeed. Damietta this winter, we ran almost flat out, so it was a very good year. We do not expect changes compared to the last summer trend, in terms of production curtailment for foreseen.
All right. Just briefly, last summer there was some curtailment. Are you saying you expect the same thing again, or you're expecting not to be curtailed?
No, no, we expect the same trend of last year.
Okay. Thank you. Okay. Thank you very much.
The next question is from Irene Himona of Societe Generale.
Thank you. Good afternoon. I had two questions. Francisco, as you said, you adjusted down your 2023 assumptions on gas and FX and the corresponding cash flow guidance. Of course, you retain unchanged your distribution. Distribution out of CFO is obviously pro-cyclical. Can you help us understand how we should think about those distributions on the way down for the commodity cycle? How high would you feel comfortable to re-leverage the balance sheet so as to sustain those distributions? My second question is on Kazakhstan, if I may. There's a lot of press over demands by the state asking for compensation. Can you help us understand the potential liability for Eni? Thank you.
I will answer on the first, then I will leave the Kazakhstan question to Guido. In term of distribution, you know that we presented the distribution policy simplified versus the previous years, that is based on distributing between 25%- 30% of the cash flow from operation in the form of dividend and in buyback. In improvement, in case of improvement versus the scenario improvement of the performance, we also, let's say, gave the opportunity to distribute an additional 35% on top. In case of lower scenario, if there is a, let's say, a drop in the prices, first of all, we have to say that this is a policy that as an automatic mechanism of self-protection.
It means that you will have a distribution that will continue to, let's say, to be in that range. Clearly we will use other levers as much as we can. Clearly, there is a possibility to rephrase CapEx, to optimize CapEx. There is a balance sheet that is highly deleveraged, that automatically is giving a parachute in term of protection for bridging these trends on the typical cycle. You have seen also in the past that we can see very big swings, but in a matter of, let's say, an year, an year out, there is a strong rebound. In many cases, it's just a matter of managing this time.
Eventually, in the case that you will have a very long and prolonged reduction in term of prices, clearly you will continue to distribute that 30% or 25%, but the buyback will be the last flexible tool that we'll use. In any case, in our policy, you have seen that we put distribution on top of our capital allocation. I think that is the last element that will be impacted. Now Guido for the question related to.
Yeah. We have seen a number of publication in local and international media alleging certain environmental concerns and fines that would have been imposed on the operator by different bodies of the republic. We were also informed by the operator that a number of inspection have been conducted in the facilities. At the moment, presently, we are not aware of any fine. There is no outcome for this inspection so far. We were also been assured by the operator that it's conducting the operations responsibly and in line and in compliance with the applicable laws and standards and best practices.
On the other end, there are also some disputes between the republic and the contracting companies on the application of a certain contractual provision related to the cost recoverability. Again, also in this case, we've been assured by the operator that is acting in accordance with the underlying contracts, PSAs and applicable laws.
Okay. Thank you very much.
The next question is from Giacomo Romeo of Jefferies.
Thank you. I have two questions left. One is around Plenitude. You have signed a cooperation agreement with Copenhagen Infrastructure Partners regarding floating wind in Italy. Historically, there have been some difficulties obtaining permissions for oil and gas, offshore oil and gas developments. Just want to understand what sort of what's the regulatory environment in Italy for offshore wind, and whether you see similar type of issues or whether it should be relatively straightforward. Second question, it's around the strategic partnership that you signed with ADNOC related transition projects. Just trying to get a little bit more color here. Does this relate to projects in the UAE specifically only? Do you have any project that is being considered at the moment? If you can give a bit more color here, it'd be great. Thank you.
Yes. The first question about Plenitude to Stefano Goberti and the second one of ADNOC to Guido Brusco. Thank you.
Thank you for the question. We have applied and obtained concession for the future development, possible development of floating wind offshore in various region in Italy. We're talking about offshore Sicily, Sardinia and Lazio, and Puglia as well. All together, we are talking about possible plant adding up to 3 GW of installed capacity. This is on a timeframe by the toward the end of this decade, so 2000, 2030. We start our, you know, round of application with the different authority. We have obtaining so far good progress out of the Sicily and then Sardinia. The remaining three concession are more recent, so we have to start now to the normal process of the application.
These are planned far from the coast, more than 30 km, so not very visible from the coast. We think we should have a normal process of obtaining the authority. The authorization. This is a process still on the way.
The strategic agreement we signed with ADNOC is an agreement to join forces towards the objective of the net zero in 2050, and to cope also with the ambition and the objective of the COP 28. In the agreement, we will explore with ADNOC opportunities to reduce the GHG, to reduce flaring gas, to reduce emissions, to reduce methane fugitives to comply with the methane pledge. Also, to identify and assess and develop opportunities in the carbon capture, utilization and storage in UAE, but also, internationally.
The next question is from Henri Patricot of UBS.
Yes, everyone. Thank you for the presentation. I have two questions around the guidance for 2023. The first one is the some increase in sustainable mobility now seen potentially above EUR 900 million. Can you expand on the drivers of the improvements here? Secondly, GGP see strong results in first quarter, and you raised the bottom end of the range, but no change to the upper end of the range for the year. Why isn't there more upside potential over the rest of the year? Thank you.
I will leave the first answer to Stefano Ballista, who is connected, to explain the confidence on what we provide in term of first results in the first quarter, those in the guidance related to sustainable mobility, and Christian about the GGP.
Yes, about Sustainable Mobility, two key drivers for the improvement. The first one is the very good results coming from the biorefinery, both in term of market condition and in term of output. This is coming also thanks to the effort we are putting in place in order to maximize flexibility in term of feedstock we can process and product diversification. On top of that, there is good results also on marketing and sales, both retail and all sales. This is strictly linked into a change of strategy focused on the optimal trade-off between a volume and unitary margin that is paying significantly off. We are confident actually to keep overtaking that target.
With respect to the GGP, the guidance that we are now anchoring our result, which is the upper range of the EURO 2.2 billion, is foreseeing a market which is in line with the one that we have seen in this first quarter. Clearly there are some uncertainties on the business in the sense that there are some negotiation ongoing that could, let's say, have surprises in the results. For the time being, we like to stick to that guidance, depending on the next months. If we see that some of the negotiation will come, will go to the, to the right direction, maybe we can, you know, adjust the guidance as well.
Okay. Thank you.
The next question is from Roberto Ranieri of Stifel.
Good afternoon, everyone. Thanks for taking my question. Two questions please on basically on energy transition. The first one is related to the Versalis acquisition. The question is how this acquisition is how and if this acquisition is improving the product mix towards sustainable chemicals. At the end of the day, what is your what is your target in terms of sustainable chemicals component out of the total of chemicals in a two years' time? My second question is on biofuels. You were talking about a strong demand and other fuels as disruptive in this demand increase.
I'm wondering how this how your plan of converting the refineries are going on, and what are the components of the refined products out of the total refined products would be in the same timeline? Thank you very much.
On the first question, I leave the floor to Adriano Alfani, CEO of Versalis, and then to Pino Ricci for the second question related to biofuel.
Sure. Thanks, Roberto, for the question. Concerning the acquisition of Novamont, this acquisition is going to fit with the strategy that we put in place for Versalis portfolio that consists on, three main driver. One is, the diversification of portfolio, that means in all the different market. The second one is circularity, and the third one is shifting some of the portfolio into green chemistry. Of course, the Novamont, it fit clearly in the green chemistry, pillar of our strategy. Depending on, the target that you are referring on, if it's two-three years, first of all, with this acquisition, as Francesco was saying before, will happen in the second half of 2023.
Far is our estimate, so means probably pretty much by beginning of 2024, because this acquisition is subject to antitrust approval from a European point of view. Once this acquisition is going to materialize, and we're going to integrate the portfolio, we expect that together with the circularity portfolio, because both circularity and the green chemistry are going to shift the portfolio to a sustainable portfolio Versalis, we target at least 20% of our portfolio in two years timeframe, two-three years timeframe in term of shifting. Of course, this is not the end point, is just because this journey should continue. At the end of what we said also in the capital market day is that we want to shift all the portfolio to sustainable portfolio, but is a journey that is a little longer than two years. Yeah.
Pino?
About the biofuel, we respond to the, to the expected, demand growing, increasing the capacity, the flexibility of, our plant. Today, our capacity is, slightly more than 1 million tons per year, of HVO. Our project is to, revamp the existing refineries, Venice and Gela, to increase the capacity of Venice, increase the flexibility of feedstock, and, produce, alternative HVO of biojet. With the flexibility to decide how to produce in both product, depending to the market profitability, in Europe. We have the project of Livorno for further, half million tons per year.
We have both the 50% of PBF that is under commissioning in these days, with another capacity of 1.1 million tons per year, fully capacity. Our is 50%. We are evaluating, we are studying the possibility to build a further refinery for biojet in Malaysia. With all these projects that are included in the plan, we will reach a 3 million tons per year of capacity. Is very important the fact that in this way we will be present in all the market with all the products. We are very flexible to keep the opportunity of the market depending to the evolution of the regulations and the market request.
Thank you very much.
The next question comes from Massimo Bonisoli of Equita.
Thank you. Good afternoon. I have two questions left. I am curious to hear your thoughts on the SERM refining margin. You increased your assumption by $1 for 2023, while margins weakened in April. Does the improvement in assumption reflect the lower natural gas cost? If yes, what's the underlying assumption on margins? The second question, just for our models, if you can provide the amount of acquisition spending left for the remainder of the year, including PLT Energia, Novamont and PBF.
About the SERM, first of all, you have to consider that clearly the market has a seasonality, and therefore looking at the margin of today is, let's say, relatively irrelevant because clearly you are passing from a quarter in the first quarter where you have $11, now to a quarter where so far you are moving around $3-$4. There is a margin that will be driven by the demand of gasoline, by the jet fuel demand that is starting to picking up, to pick up in Asia particularly. Therefore, our estimate of growth is related to the fact that we were moving from the $7 to the in a quarter, in the first quarter, very high.
That there is a benefit, as you mentioned, related to the utility cost, but also on a trend on demand, mainly in gasoline and in jet fuel that will be higher. On diesel, clearly the trend on diesel is suffering of two main headwinds. One is a lower gas price. It means there is less opportunity to switch from gas to diesel. The second one is related to the accumulation of stocks of diesel that were done in advance of the ban that were implemented in the past month. There is now a long position on diesel in the market. This is, these are the rationales behind the increase of the SERM.
Related to the overall impact of M&A, you have seen that there is acquisition on clearly that will impact the cash out once all this authorization or antitrust will occur. Therefore it's difficult to, let's say, to be precise on the overall effect, net effect in 2023. As we mentioned, we want to continue to balance our acquisition and disposal. Actually, in the four-year plan, we have a slightly positive EUR 1 billion net impact in term of cash from the disposal versus the acquisition.
I could say that probably 2023 will be negative in term of absorption of cash. This is clear assumption on the basis on certain, let's say, conclusion and closing on the deal in both from the sale and from the acquisition point of view.
Thank you very much.
The next question comes from Amy Wong of Credit Suisse.
Hi. Good afternoon, thanks for taking my questions. I have two, please. The first one relates to your production guidance for the year. Firstly, you know, first quarter, very strong production number. 2Q, understand that you've got some seasonal maintenance. Just thinking about the second half numbers, if you can just give a bit of color on some of the moving parts there, ramp-ups versus, you know, production coming back from turnarounds, that'd be very helpful. The second question I had is related, unrelated. It's in U.K. CCS. I want to take this opportunity to maybe pick your brains on what's happening on HyNet and very encouraging developments in the U.K. there.
From your perspective, let us know some of the milestones we should be looking out for and, any kind of, you know, additional news flow we should be expecting, from HyNet to see that project come in, ultimately to fruition. Thank you.
Guido, for both answers.
Yeah. On the production, clearly the result of the first quarter supports the robustness of our production guidance. As you mentioned, in the second quarter, we have a number of planned turnaround activities which are mostly concentrated in this quarter. In the third and fourth quarter, of course, we will recover from the turnaround, and we will have ramp up in Mexico and Mozambique. We will have also the startup of the our flagship project in Ivory Coast. This will give the boost to be well within the guidance we gave during the Capital Market Day.
As far as the CCS project in the U.K., we confirm that we are running on schedule to have a start up by quarter 4 of 2025. The HyNet project was one of the two project that has been elected in the Track-1. We have also received expression of interest from more than 19 emitters for capacity, which is far beyond the capacity of the project itself. A lot of interest from the emitters and from the government to run on schedule this project.
Thanks, Guido. Just a quick follow-up on the, and thanks for giving some color on the number of emitters who'd like to contribute their CO2 for you, for your project. Can you give some color on the selection process, how that's gonna work in terms of pricing or what's, what are some of the criteria we should be looking out for?
It is still work in progress. We are working with the regulatory bodies and the government of U.K., but very likely will be a RAB model for the T&S and a contract for difference for the emitters. As I said, it's still work in progress.
Thank you very much for that.
The next question is from Kim Fustier of HSBC.
Hi. Good afternoon, and thank you for taking my questions. I had two left, please. The first one is I just wanted to go back to the Cyprus and East Med region. You've made a number of gas discoveries in the region, Egypt and Cyprus, but there's also several big oil companies present in the region. There's ExxonMobil, Chevron, Shell, possibly now BP as well, boosting its presence. I guess the more companies there are, the more difficult it is to get full partner alignment. What are your latest thoughts on monetization for gas in the region and whether your preferred route is a tieback to Egyptian infrastructure or floating LNG? My second question, just staying in Egypt, is that we've heard that Egypt receivables have been increasing substantially in the last couple of months. Are you able to comment on this?
Yeah. Guido.
indeed, a lot of interest in the East Med, and, we are assessing a number of, development concept and opportunities to monetize the gas, discovered in the East Med region. However, the most promising and attractive, option, seems to be the tie into Egypt. We are actively working with partners and with the government to pursue this opportunity.
About the receivable in Egypt, we don't see any issue. Yeah. From our point of view.
Yeah.
Thank you.
The final question is from Bertrand Hodée of Kepler Cheuvreux.
Yes. Thank you. Again, congratulations for the very strong performance of the GGP division. When I look at your guidance for the strategic plan on that division, you are guiding for above EUR 4 billion EBIT, knowing that you're going to do above EUR 2 billion this year. Meaning that you're assuming quite a sharp decrease in the GGP performance starting in 2024 at, let's say, around EUR 600 million -EUR700 million EBIT. Have you revisited your thinking about the way forward in GGP in the years after 2023? Fundamentally, Francesco, in your earlier remark, you pointed to a market, gas market in Europe that has fundamentally changed, especially with the absence of gas from there.
My question is when do you believe you will be able to raise this outlook for GGP beyond 2023? Do you think that with now less Russian supply, you are fundamentally in a better position to deliver on a recurring basis more profitable trading wholesale gas business? Thank you.
First of all, a very general answer. Eni has changed this model of GGP because as substantially moved from a role where is an integrated equity supplier of European gas. This is, let's say, notwithstanding what happened with the Russian gas. With the substitution of Russian gas. That clearly has accelerated a process that was ongoing and has the advantage of creating more flexibility, different sources, different opportunity and faster opportunity to capture volatility in the market. Also building a model that is more exposed to the market, less hedged. Once you buy from third party, you are clearly exposed to the risk of your cost of supply, that clearly if you produce is a sort of natural balance. About the expectation for the next years, I leave the answer to Christian.
Yeah. There are a number of things that are actually changing the gas market, especially in Europe. As you pointed out, the loss of Russian gas is creating more volatility in the market. On the one end, clearly, we have seen it in the level of prices, because, I mean, you know, substantial amount of gas was missing, this was clear. There is another effect, which is the fact that the flexibility of the Russian gas is missing in the market. This is actually creating a lot of volatility in general. On top of that, as we said before, the more integration with the upstream is giving us, let's say, more chances to get more value out of, you know, out of the value chain.
I would say, you know, let's say this year is promised to be another very strong year for GGP, and clearly we will not leave any penny on the table. For the guidance of the four-year plan, I would say we'll surely revisit it and relook at it in order to make it, let's say, more in line and more relevant vis-a-vis this new market environment, which is actually becoming every day more a reality.
Thank you.
That was the final question. Thank you for participating in the Eni conference.
Thank you.
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