Afternoon, ladies and gentlemen, and welcome to the NE's 2021 First Quarter Results Conference Call, hosted by Mr. Francesco Dattai, Chief Financial Officer. For the duration of the call, you will be on listen only mode. I am now handing you over to your host to begin today's conference. Thank you.
Good afternoon, and welcome to NII's Q1 2021 results. 2021 is still an era of transition and the Q1 has demonstrated a different pace of recovery for our businesses. The quarter was positive for oil with an 11% growth of brand price in euro versus Q1 2020. We have recorded a partial rebound of demand now at around 95,000,000 barrels per day and a more materially disciplined supply, mainly thanks to the OPEC plus capital and natural decline of tight oil production. Likewise, chemicals rebounded strongly benefiting from industry wide disruptions Due to the winter weather in the U.
S. And higher demand in Asia. On the other hand, other sectors are still facing a weak environment. Downstream was impacted by negative refining margins and the lower volumes due to the lockdowns mainly across Europe. Finally, notwithstanding the increase of gas prices, The spread between PSV and TTF showed very low differential due to the new supply sources in Italy and increased demand in Europe and Far East.
Notwithstanding this mixed conditions, we are steadily making progress in our recovery. E and I EBIT adjusted at €1,300,000,000 was flat versus Q1 2020 and it was 2.7 times higher than the previous quarter. Net profit adjusted at $0.27 was also 5 times higher than the Q1 2020. In detail, in upstream, our production of 1,700,000 barrels per day is in line with our early guidance. Production was 5% lower than last year with a steady gas profile 9% lower in oil production due to the OPEC cut and lower investment in production optimization because of the pandemic.
In exploration, within our infrastructure lead strategy, we discovered 120,000,000 barrels of oil equivalent, mainly in Norway and in Angola, creating synergies with existing gaps and facilities. The quiz discovery in Angola is closer to our existing FPSO in Block 1506 and will be connected to the production within 6 months. Global Gas and LNG EBIT was slightly negative due to the low spread between European hubs and due to the reduced optimization opportunity with respect to last year. We expect the coming months remain challenging for this business. With regards to energy evolution, we are rapidly progressing to expand the value of our retail and renewable businesses.
We entered the Spanish market this quarter acquiring both retail and renewable assets As well completing the acquisition of a 20% stake in Dogger Bank, our first wind offshore project in UK. The merger of the retail and renewable businesses is progressing and further on in the presentation, I will outline our plans. Edifying a negative margin of minus $0.6 per barrel in the quarter and weaker retail sales in Europe, minus 10% year on year impacted our results. Lockdown and the limited air traffic demand weighted on the consumption of the most valuable products. In biorefinery, where weaker demand has also put pressures on margin, we have now started up a new biomass treatment unit in JELA that will enable us to receive up to 100% waste and receive feedstock in line with our palm oil free target by 2023.
Moreover, we made a material move in this promising sector with the acquisition of Real, a leader in the Italian biogas production. Versalis, our chemical company, delivered its best results since 2018. Coming on to financials, with CFFO of €1,960,000,000 and CapEx of $1,400,000 we were able to generate a robust cash flow. Even taking into account our portfolio net acquisition of €400,000,000 we kept leverage flat at 31%. And now let's move on to Natural Resources.
Upstream EBIT in the Q1 was €1,400,000,000 an increase of around €300,000,000 compared to the Q1 2020, thanks to the improved market condition And notwithstanding the lower level of production around 90,000 barrels per day year on year. In line with our yearly guidance, production in 2021 is confirmed at 1,700,000 barrels per barrel, Considering an OPEC cut of 35,000 barrels per day. In the second quarter, we expect production to be at around 1,600,000 barrels due to the maintenance that we originally planned in 2020 and we postpone in 2021 due to COVID. We plan therefore a progressive rebound in the following quarters. In 2021, with CapEx kept below €4,500,000,000 we will be able to fully capture the benefit of an higher scenario.
Regarding GGGP, on 21 February 2021, The first LNG cargo was successfully loaded from Danietta plant. To date, a total of 9 cargo have been loaded and we expect to maintain stable production during the rest of the year for a total of around 40 cargoes across 2021, contributing to sustain our gas equity production in Egypt. In terms of GGGPEBIT, 4th quarter was slightly negative, down by around EUR 260,000,000 compared to the previous year. The result was mainly driven by the very low spread between the hubs European hubs Minus 84% year on year that led to limited trading opportunity, especially in Italy impacting for around 1 third of the overall losses. The additional negative impact is mostly linked to the lack of positive one off optimization that occurred in the Q1 2020.
If the current scenario is confirmed for the rest of the year, we expect the GGP 2021 EBITDA to be almost at breakeven while delivering a positive free cash flow of around €200,000,000 also thanks to the contribution of the deal that led to the EMEA startup. Before moving to Energy Evolution, I want to focus briefly on the startup of Merakes field in Indonesia that we have announced early this week. Merakes is a concrete step in our strategy focused on increasing gas production, leveraging our infrastructure lead exploration and fast time to market. Indeed, excluding the 6 months of temporary suspension due to COVID between March to September 2020, Merakes has been developed in less than 2 years from the FID as a tie in to the existing Jan Creek FPU. The field is estimated to hold about 2,000,000,000,000 cubic feet of lean gas in place and will contribute with an equity production of about 30,000 barrels per day in 2021 and of 50,000 barrels per day in 2022.
Meraki's gas will be partially sold to the domestic market and will also support the extension of the life of the Boateng LNG Facility. Moving on to energy evolution. Any gas and luce and renewable is growing rapidly. EBITDA in the Q1 2021 was €220,000,000 17% higher than last year, Thanks to the strong performance of EGL, which benefited from a growing customer and service basis. The combined entity retailer renewables will reach an EBITDA of 2021 of €600,000,000 Growing almost 70% on a yearly basis.
Downstream EBIT in the quarter was slightly negative. In R and M, weak demand in particularly for jet fuel due to the widespread lockdown measures put pressure on oil and biorefining margins. We expect a gradual recovery over the course of the year with the easing of COVID measures. Versalis posted a positive results for the first time since the Q2 of 2019, driven by polyethylene and styrenics demand and a good margin environment. We expect this positive environment gradually reduced in the coming quarter, but the results of the Chemical segment is forecasted to remain positive.
For the full year, the lower than expected refinery scenario will be almost compensated through our remediation action plan as well as the Through our remediation action plan as well as the positive chemical trend, the overall EBIT adjusted pro form a for downstream R and M in the chemical will be in the range of €400,000,000 Turning now to cash. In the Q1 of 2021, the adjusted cash flow from operation before working capital was at €1,960,000,000 exceeding our overall CapEx of €1,400,000,000 Looking at 2021, We expect a cash flow from operations before working capital at replacement cost higher than €9,000,000,000 at the French price of around $60 per barrel and assuming a refining margin just above 0. This cash flow generation will more than cover our 2021 CapEx of almost €6,000,000,000 Before turning to the Q and A session, I would like to spend a few minutes on our plan for the Retail and Renewable Businesses. Today, the Board of Eni has approved the launch of a strategic project to evaluate the best in natural and financial plan for the new entity resulting from this integration. This operation is part of any wider commitment to delivering value through the energy transition and represent a material step in reducing the scot free emission of our domestic clients.
A journey that we started few years ago. For renewables in 2015, when we created Energy Solutions, the business unit that has progressively expanded is pan of technology and geographies and it is now managing more than 1 gigawatt of capacity installed or under construction in more than 10 countries. During this period, we have built different joint venture to create the growth opportunity in U. S. With Falk Renewables, in Norway with High-tech and in Italy with CDP.
In 2021, we have also joined the world's largest offshore wind project in Dogger Bank in UK. This joint venture together with other standalone initiative will be the organic source of our growth. In the meantime, we have expanded our retail offer. In 2017, Any Gasoluce, the historical unit of Gas and Power dedicated to the final market was established as a dedicated company for the sale of innovative energy services to the final customers. PGL expanded its international footprint, setting up a new company in Greece in 2018 and entering the Spanish market this year.
Furthermore, IGL has announced its offer with additional services, including Energy Management, Electric Mobility and Buildings Energy Upgrading, providing Products and services to almost 10,000,000 clients. Looking to the future, we expect retail GMP Customer to grow to $50,000,000 within a decade with an increasing supply of renewable power and biomass sales. Renewable capacity will reach more than 1 gigawatt by the end of 2021, including projects under construction, Reaching 5 gigawatt of installer capacity by 202515 gigawatt by 2,030. Through this new entity, we are creating a unique proposition, both for our customers and our investors. In an increasing competitive market, renewables will benefit from a captive customer base representing a stabilizing factor for revenues, giving more optionality in the use of the market opportunities and contracts.
At the same time, retail will be able to sell green energy produced by proprietary plans. We believe that this will be a key marketing differentiation factor enhancing our commercial attractiveness. Finally, additional services including distributed solar and energy management will complete our distinctive approach. Overall, EBITDA of the new entity is expected to almost double from €600,000,000 in 2021 to around €1,000,000,000 by the end of the plan. Operating cash flow generation will double as well, thanks to a resilient and free cash flow positive retail businesses accompanied by the renewals business growing cash contributions.
ENI has formed an internal team supported by strategic and financial advisors to lead the project that will evaluate multiple options to extrapolate the maximum value from this new entity. Option under considerations include a stock exchange listing through initial public offering for the sale or exchange of a minority stake in the new entity during the course of 2022 subject to market conditions. The market valorization will unlock value capturing the better Enterprise Value EBITDA Multiples that today the market recognized 2 renewable retail companies. Now together with E and I top management, we are ready to answer to your questions. Thank you.
The first question is from Michele Della Vigna of Goldman Sachs. Please go ahead.
Francesco, thank you very much for the presentation. I have two questions, if I may. The first one is on EniGas elucha. I was wondering, do you see this as your global day Call for Power, which includes all of the renewable work that you're doing in your upstream heartlands in the Caspian, in Africa, In Southeast Asia or more as a European focused company. And then secondly, your ongoing exploration success continues to provide you with a large funnel of short cycle development opportunities.
At the
time when the macro recovery is finally coming through, Do you see an opportunity to accelerate the development of this project? And what do you see as the most interesting Investment decisions coming. Okay. Thank you, Michele. About AGL, then I will leave it to Alessandro Pulitti The answer about the exploration of the FID.
No, in terms of AGR, what I can tell you is that This is a vehicle that for us is a vehicle to decarbonize our domestic clients. So that is the main scope of this vehicle. This vehicle is substantially a new entity. There is no such kind of players In the market, the market is now specialized or is building and generating capacity or on the other side is selling power To the clients, we are generating now we are creating this new machine that put together these two streams. And in the middle, there is value because in the middle, there is energy management.
There is a capability to absorb the flotation of renewables and so Gaining value from that. And there is clearly value in the true side of this proposition because as we said that there is Stabilizing the renewable sales To a captive client and there is a green marketing proposal that is attractive for the domestic customers. In terms of the boundaries of this vehicle, this vehicle would be clearly Mainly an OECD player, because clearly in this area, there is the full chain combat, but there is no an exclusive, Let's say, OCD. For example, we have opportunity in certain country That we believe are quite promising. For example, we think in Kazakhstan, countries of E and P original historical Positioning in this country, we could just be exposed to the generation side.
In the future, we don't know. In the future, we will see what's going on. But The generation side will remain attractive. So where there is a market that is, let's say, more mature, advanced, there is an Dattai. To sell directly to the final customer.
Otherwise, we will sell to the grid, for example, also in Australia, Well, we have activity already existing. What will not be included is that kind of generation capacity That is, let's say, embedded the strictly connected to our upstream plants. In that case, this capacity is just facilities of our upstream activity. Now I leave the second answer to Alessandro.
Okay. Good afternoon. Regarding ability to transform recent exploration success In Accelerated Development Program to capture the oil pricing upside, I will say that this is exactly the strategy was set because our exploration is mainly devoted to the so called infrastructure led exploration, so means prospects nearby existing infrastructure and facilities to accelerate time to market And bring new production to the market. Also, we have a Strong input in what is called the near field exploration, so directly closed to Fields already in production. I would like just to give you an example on this.
Recently in the Western Desert of Egypt, Arcadia Discovery led in few months really, in few months, so the original 3, 4 months To from 0 to an addition of 50,000 barrels of oil To our Aghibba operating company in the Western Desert of Egypt. And this was Immediately put into production right after 4 successful exploration wells.
Thank you.
The next question is from Mehdi Ennebati of Bank of America. Please go ahead.
Hi. So good afternoon and thanks for taking my questions. So two questions, please. The first one regarding the upstream. This is a priority of sensitivity to the oil that you provided us a few months ago.
Your Q1 extreme EBIT would have been much higher And what you've posted, can you please tell us why there was such a difference between what you've posted and the figure based on the sensitivity? Was there any one off or anything like that, which negatively impacted your restructuring EBIT? And the second question, please, on PeerSalys. We discussed the positive results for the first time in 2018, as you said. This is good.
But if I look at the utilization rate At your chemical plants, it remains at around 70%. So this means that you are able to take advantage of the strong macroeconomic Environment, does the local demand doesn't allow you to increase the production? Or should we expect Okay. I will answer to the first and then I will leave it to Adriano Fani, the answer about the chemical performance. Actually, once we apply the sensitivity, There are 2 elements, 1st of all, of principles to be taken into account, then I will describe also the specific case.
The two elements that you have to take into account that on a quarterly basis, I think that there are various moving parts. So it is Capturing a shift quarter by quarter, it is, let's say, relatively not precise. Another factor that we have to take into account is that in the sensitivity, clearly, there is we said that this kind of sensitivity Are designed with a movement of price that are relatively small. So in the sense of $5 $7 Because what's going on is that if you have a $17 change, if you compare, for example, the last quarter 2020 with the Q1 2021, First of all, you have 50 percent of additive gas. In that gas, there is, just to give you an idea, 20% of the spot, So he's collecting the dynamic of that quarter.
Then there is another 30% that is oil linked. And once it is running, doesn't mean that it's running the third quarter. Majority speaking is a 9 month average Of the previous 9 months. So that will be, let's say, a sort of lag time change In the price of that 30%. And then there is a 50% of gas that is related to Fixed price, so formal price that are completely, let's say, not referred, they're not linked to variation of scenario All very margin and linked to that.
So that is the first element that we have to take into account. So a linear approach Our sensitivity in a quarter, it is in such a size of changes, it is not correct. Then there is also some PSA impact that could also impact affect. Specifically, for the quarter 2020 and Every quarter 2021, there were two factors. At the end of the year, generally, you have also one off.
For example, at the end of last year, We had an insurance benefit. We had a settlement in West Africa. So there were some changes that impacted positively that quarter in the At EBIT level. And then there was also change of mix. The change of mix, for example, was just to give you a figure, it's a larger figure, was a large increase in the gas of Zohr that has a fixed formula And there was, for example, a lower contribution in Indonesia for Jank Creek that is more related to the spot market of the JKM.
And then there were also changes, for example, in Carajaga and Aco, Nigeria. So Even if you have some absolute gas trend or absolute volume trend that seems similar, There are a lot of moving parts. Another element then justify that once you have this larger variation, It is more appropriate to apply a certain degree of discount. It is not large this discount, But it is, let's say, reflecting all the factors that I mentioned now. Then I leave it to Adriano for the answer about chemicals.
Sure.
Thanks, Francesco. Can you hear me well?
I appreciate it.
Okay. Thank you. Yes. As you described, the situation in Q1 was extremely positive because we have seen a global recovery in demand And mainly in Asia and North America, but also in Europe, strong recovery and a rebound that was Significantly faster and bigger than what we expected at the beginning. This was also complemented with Additional problem on the supply side.
Why I say additional? Because already at the end of 2020 with hurricane season in the U. S, We start to see some limitation in port of products from North America and saw some shortage in Europe. And this shortage has been Increased in Q1 due to the very bad weather in Texas with no bad property tax that we didn't see for the last coming years and also some unplanned events in Asia and in Europe. As you said, our asset utilization was in the range of 70% to 72%, why we could not have run more.
Mainly for two reasons. One reason relates to internal effect because we have some unplanned event, Very minor on point events that limit us a little bit in term of producing more, but also because in some stream of business, We also buy product in the market. So like Benzene, like Akrinovic trial and few other chemicals that Being very short in the market, we also faced some challenge in order to secure. And so this is the reason why in Q1, We run as much as possible, but our asset litigation was in the range of 72%, which was anyway Very much in line with the Q4 2020. In the Q2, our asset origination would be impacted by You plan events that we have already announced.
I'm talking about plan events like the turnaround in the previously of the bit cracking in previously, Some activity that we also announced this week in Mantova. So we are going to have limited capacity driven by the turnaround season.
The next question is from John Rigby of UBS. Please go ahead.
Thank you. Hi, everybody. So I just have Just had a quick question on the transaction or the proposed transaction. The first is, is the transaction in of itself all that you plan to do? Or is there some second That will emphasize the value expansion.
So what I mean is clearly this will That you're proposing to do, enhance the buyback or something just to actually physically Demonstrate and highlight the differential in valuations. And then the second question is We sort of wrestle with this issue of the paradox of trying to maintain The advantage or competitive advantage that integrated oil companies have in entering some of these markets with the skills that they have Against the sort of integrated discount on operational side. So is there a way Sure. A management and legal arrangement that you can set up that maintains the sort of independence Of this new entity, but he's also able to ensure that you share The skill set that existed in the EMI Group. Thanks.
Okay. John, Clearly, about the first question, you touched on an important point. I would like just to recap what are the 3 main About this transaction and this merger and the potential IPO disposal the next year. I think that the first element it is An industrial rationale. The latter rationale is what I mentioned.
This integrated value chain That will stabilize value, that will add the value at the end and that will create value in the middle. So I think this is Something that could be done only by an integrated player. The second element is that to create a vehicle that is working in this new area of growth in these new businesses With the right and proper metrics. Once I speak about metrics, I'm speaking about the multiple of value, but also I'm speaking about the cost of Capital, speaking about the dividend policy of this vehicle and speaking about the leverage level. So we will, Let's say create a runner for this growth area of businesses.
In the current world, If you enter and play this game, you buy immediately with circa multiple. And once this new Opportunity enters your portfolio, they will be immediately discounted as you are an integrated oil and gas company. So we wanted to have the right currency to play this game. So the 3rd element instead is what you mentioned, the fact that This opportunity is an opportunity to free cash to stabilize and improve the distribution policy of Eni And reinforce substantially both the capability to growth of the new entity, so accelerating CapEx, Thanks to the benefit of this new equity, let's say, inflows, but also on the leverage that you could be you will be able to attract And substantially relieving ENI from the cash, let's say, cash impact to invest in this new business. So I think that it is too early now to design a news of the proceed.
But what I can tell you, what is visible is that there is a win win opportunity both For the new entity and for the another company. Clearly, we wanted to keep and this is coming To the second question, we wanted to keep the control of this entity because we believe that We want to highlight the value and I mentioned this one before, but we want also to prove that this is just one of the leg of our decarbonization plan. Eni will be an energy company fully decarbonized in all segments, in all sectors, in Processes and Products. In this way, we are, let's say, creating the tool to, let's say, decarbonize our domestic clients. But clearly, we are decarbonizing Our upstream with the net deal target in 2,030.
The downstream, you know that we have the target 2,040. And overall, we have a Scope 3 target. So we have then to touch the additional element of our emission flows. So there will be other clients, the mobility clients That had to be decarbonized and there will be also the clients that we don't touch directly. So the clients that are just user of our Oil and Gas Production.
So I think that we wanted to keep this link because and this is the reason we are thinking to a minority A minority stake disposal, because I think that this is an early phase of this journey and it is a process that will touch overall the company and we believe that this kind of discount will be progressively reduced because of the Overall effort that you will see in all segments. Right. Got it. Thank you. That's all I got.
The next question is from Alessandro Pozzi of Mediobanca. Please go ahead.
Hi. I have Two questions. The first one on the tax rate. I think there are a couple of last surprises there. At the group level, 75% is probably higher than what I had expected.
So if you can maybe give us some additional color there. Then at the same time, I think the upstream was quite low despite the increase in volumes from Monro Africa And Egypt. So maybe can you tell us how we should model the tax rate in the upstream and at the group level going forward in 2021? Also maybe an update on the renewable pipeline. Can you give us maybe some color on the next Key projects coming on stream.
And also, I've seen that you signed a new JV with the GDP and Genesys. I was wondering what type of opportunities do you see and also the type of permitting that in Italy is quite slow to get permits For new projects, so I think you have quite an ambitious target of 1 gigawatt of new capacity. Yes, and EBITDA.
Okay. Thank you. Then I will answer to the tax And then I will leave to Alessandro della Zopa, the answer about renewables. About the tax rate, it is right. It was 70%, 73% that is a bit higher than our original estimate.
Alora, I think that The overall, let's say, group tax rate have to be read take into account that we have a very negative performance in this quarter of R&M and the GDGP. So the segments that are substantially with very low tax rate. And we have to take also to account that we didn't recognize certain deferred tax assets in Italy Due to this to the potential, let's say, future recoverability. So there is one factor that substantially impacted This effect. Without this one off element, we would have been to the same level of the guidance, so a 50% tax rate up around $60 About E and P, the E and P tax rate It's 50% that is quite low.
It is quite low because in a world of $60 You will have benefit from many countries and not only, let's say, the higher Tax rate typical countries that are Libya, Egypt, Middle East, etcetera. But you benefit also for results From other regions, OECD Counts, etcetera, Italy. So the overall EMP is benefiting of this mix of different contributors. In terms of the expectation of the tax rate in the full year, actually, I can confirm that we return Today, overall 60%, 65%, because this one off element that you have seen In this quarter is expected substantially to be minimized as we absorb the progressivity. So I think that The guidance again on a quarterly basis has a value, but cannot be taken In absolute terms, so I have to be a bit corrected.
In a yearly basis, it is confirmed. And then Alessandro, if you are able, if you can, please answer to the question of renewables growth.
Yes. In renewables, as we said, we expect to have To exceed 1 gigawatt of capacity at the end of this year installed or under construction. And coming to your question specifically on the pipeline, we are also working to reinforce our pipeline towards The target of 4 gigawatt in 2024. We are doing this along a number of lines of development. I would mention a few.
One is our JV in the U. S. Together with FACT Renewables is now The JV is now fully operational and is taking advantage of an improving framework generated by the new administration. In Southern Europe, we are working on a number of targets, especially in co developments as the one that we announced Just 1 month ago with the Spanish company Exelio, by which we will acquire 3 photovoltaic plants in the south of Spain. We are targeting particularly those countries because These are the countries where we expect to be able to explore the more synergies with our retail business that also entered Spain, for example, in the last month.
And last, But I would say also very important is what we are doing in Italy. Our joint venture with GT Investiti is also now fully operational and is working in order to to reinforce our pipeline of greenfield projects, including through the announcement of real estate assets that we own or CDP owns or the public administration owns and are now unutilized. This is, we I think a field of development that is very interesting from an economic point of view and also very much in line with the development of the
Okay. Did you expect
a bit more favorable environment in Italy following the New government, do you think anything will be accelerating the process?
Certainly, we see the conditions now for the environment to improve, Especially in the authorization processes that are, Let me see. The weak point, the weak element that has slowed down the development of renewables in the last Few years, there are certainly a number of good announcements in this respect by the government.
Okay. That's fine. Maybe if I can squeeze the final one. It's probably not clear concerning the right comparable for the For the Renewables and Your Retail business together, what sort of valuation do you have? What sort of multiples we should think about for that business?
Alessandro,
I think that clearly it is too early because we are selling this concept that is clearly a new concept. But Just to give you some elements coming from the market. An E and P measure is now valued 4 to 5 Thanks, the EBITDA. High Tailor is valued between 7 to 8 times of EBITDA and the renewable player It's valid that clearly based on the growth assumption, etcetera, between 10 to 15 times EBITDA. There are also sections above that.
So The instruction or the light of this vehicle outside has already immediately a value Proposition, the combination of these 2 entities clearly could move the potential Mixed vehicle in the range of a double digit multipole.
Okay, that's
very clear. Thank you very much.
The next question is from Irene Himona of Societe Generale. Please go ahead, ma'am. Thank you very much. Good afternoon. Two questions, please.
First, a question on Mexico, if I may. They have just passed this new hydrocarbon law, rolling back the Energy liberalization of recent years. You have quite a presence there, obviously. I wonder how we should think about the risks To any in particular to the full development of Area 1 Or indeed, in terms of potentially higher tax and royalty levels in Mexico. And my second question is on the global gas and LNG business.
I mean, it seems you're making sort of you're delivering great profits in quarters when you had some contractual renegotiation. So if we remove that, we're left with essentially a trading business. How should we think of this business? Because clearly, we cannot model or predict contractual settlements. How should we think of it going forward, please?
Thank you, Irene. I leave the answer on Mexico to Alessandro Puliti and on the LNG business to Cristiano Signorepo. Thank you.
Okay. Regarding Mexico and our project and new laws, so our project is progressing. As you know, we are in the early production phase nowadays and we are constantly producing Above 20,000 barrels of oil per day. In the next Pierre, it is foreseen the installation of the FPSO and then we will ramp up to its maximum production. So we are not envisaging impact on our project due to the new law, Because as far as we understand, it won't affect this project, but won't affect Other, let's say, oil trading business, but not development, this kind of development.
So For the time being, we don't have any doubt on our project delivery in Mexico. And I will leave the floor to Christian for the LNG.
Good afternoon. So Let me elaborate maybe the answer on 2 pillars. So on the gas business, which is Mostly clearly geared into Europe and Italy. As you pointed out, this is clearly affected By the renegotiation that we have with our long term supplier as it used to be in the past. As you can imagine, this quarter was Affected by the negative impact of the spread between the Italian market and the European market, which in turns clearly affects our long term supply agreements.
And clearly, so this has triggered a renegotiation that will bear its fruit in the future. When it comes to the LNG instead, as you know, we are planning to grow Substantially our portfolio in sync with our upstream activities. In the Q1, we sold 1,500,000 tonne of LNG. But in that quarter, we don't see any contribution to the Dermira startup. And in the future quarters, you will see that clearly also contributing.
And in the future, I mean, also thanks to other equity project this will be increased even further. And but as you can imagine now that activities is linked to the midstream part of the value chain. So the movement of the flat price Of the LNG and of the gas is captured into the upstream. Here we are taking care of the, let's say, Trading margin, as we call it, which comes from the differential between the price at which we buy the LNG and the price at which we sell it into the global market.
Okay. Thank you. The next question is from Oswald Clint of Bernstein. Please go ahead.
Thank you. Francesco, just I wonder if you could help think about the cash flows from Some of your other start ups, you spoke about Maracas. But in terms of Algeria and Angola and Sharjah recently, the ramping up there, what's A little bit opaque, I guess, on pricing and taxes. Just some indication or color around it, maybe the cash flow per barrel that Those projects are really delivering, please. That would be helpful.
And then could you talk around any feedstock Pricing pressures as it relates to your biorefineries, obviously, Gela has the locally sourced Biomass, but what about the palm oil as it relates to Dennis? Has there been pressure there in the Q1? And how do you think it plays out through the rest of the year?
Thank you. Thank you, Oswalda. I leave this second question To Pivoluci, Humberto Carrera and then I will return to you about the project that you Quite in terms of contribution. Clearly, we are not providing details at a project level. What I can tell you, I will describe later.
Pino, please.
Okay. Humberto speaking. Yes, about the pricing of the feedstock in our biorefinery, yes, the Q1 was We had quite a pressure from the palm oil, which was the main component of our Feast of Ode Bio Refinery, but We do expect a significant variation in the course of the year because we have put In operation, I will be sure that will allow us to change significantly the slate of the feedstock for the Bay refinery.
About the cash flow, clearly, each Each project has its own cash also because it's characterized by completely different products. The project in the area in Sharjah is a project of gas with condensate. So wet gas, It is quite attractive in terms of cash flow. The one off Algeria that you are referring to, the Berkem, is made of different streams, one is a gas production and the other one is an oil production that we started earlier. What I can tell you is that substantially in term of cash generation, we are perfectly in line with our expectations.
So I think that you have seen from the cash assumption in terms of cash flow from operation That we are presenting in a $60 award. Actually, we are capturing The full benefit of the scenario, you have to consider that this is on a yearly basis, we will be able to capture Both of the oil, but also the gas that is growing as we mentioned before because of the timeline in particular in the oil linked comps that's clearly not in the fixed domestic sales. But just to give you a measure, We presented our plan in February with a $50 assumption of oil With cash flow from operation that was close to $8,000,000,000 just below $8,000,000,000 Adding up this $10 changes Assumption of a $60 Brent, we will gain practically 1.5 In term of oil of Brent effect, but you have also to take into account of CERMA We are presenting with an assumption in that sensitivity in close to 0. So we are losing an additional EUR 300,000,000. You could add something on chemicals, but at the end of the day, if you make the sum, you reach a value closer to the €9,000,000,000 in excess of €9,000,000,000 This is exactly the reference that we are presenting to you.
Actually, in our forecast, We are also gaining a bit more, thanks to the performance, to the mix. So I will say that Everything is actually in line with our prediction. And the contribution of these new fields are taking into account in the overall mix Contributing with positive value, because they are essentially onshore brownfield, the case of Sharjah In the case of Berkin, there is clearly a lot of facilities and there is clearly a benefit from that point of view.
That's really helpful. Thank you, Francesco.
The next question is from Massimo Bonisoli of Equita. Please go ahead.
Thank you and good afternoon. I have a question on the announced transaction. You mentioned among the options an exchange of minority stake. So could you give us some color on This option, would you eventually swap your stake for another minority in a renewable company or it may also include other E and P assets? Are you looking for synergies with another renewable retail company?
And the second question is back on the Call of the Q4, it was announced there that you will eventually have A transaction in the outspring like the one with Var Energi for a joint venture in upstream assets. Are you targeting larger portfolio of assets for the JV, which include Multiple countries in the same region, just to understand the perimeter of a deal in the upstream.
Okay. About the first transaction, the retailer renewable, clearly, we have listed 3 different opportunities, clearly the IPO, the disposal to a strategic player, or you went to a combination, Clearly, this element cannot be a combination for an upstream player. We want to create a retail renewable champion. So we have to assume and to work within That playground. So I think that this is the logic of this operation on this potential Option, because at the end of the day, we listed all the potential option in this early phase of our study.
About the Var like initiative, if you remember that once we presented the strategy, We say that we would like to have this kind of combination because we wanted to create vehicles that are able financially To be standalone, this is different from the retail variable. In this case, the target is to have a big consolidated vehicle as well Able to collect cash, etcetera, and to distribute dividend and to reduce the CapEx exposure in particular in certain countries For regions that are more, let's say, capital intensive. So from the point of view, we are actually working very hard on that. There are more areas of interest, more geographies of interest and potentially different operation, Not all have the same, let's say, degree of maturity, but clearly, we are thinking Two combination where we could have a few countries together, not too many countries, because once you build this kind of vehicle, You have to think on operational synergies. You have to think of financial attractiveness And also you have to think on governance.
So you cannot be just to say to put together in a big soup All the ingredients that you like, you have to select the right one.
Very clear, Francesco. If I may squeeze in another very quick question just For our models, considering the change in the assumption of oil for cash flow generation, What would be your new net working capital impact for 2021?
On working capital, the assumption Essentially to have around €500,000,000 of absorbed of working capital. So we continue to have this
The next question is from Giacomo Romero of Jefferies. Please go ahead.
Good morning. The first question is on renewable Capacity growth that you discussed, a lot of the focus of the JVs you mentioned seems to be tilted towards solar. And Your scale at the moment in wind is, you could say, somewhat suboptimal. Can you talk a little bit about the potential bidding opportunities To add capacity in this technology and where do you see wind offshore wind capacity going in the context of your 5 gigawatts and 15 gigawatts targets? And the second question is, you mentioned that EGL Power and Renewables is just one of your decarbonization legs.
Your biofuel business is also quite unique in the context of the integrated sector, I think. So do you think that the value of this Business is fully recognized at the moment. And have you considered a similar path to the one you announced today with for any gas and pollution Power Renewables for this business as well.
Okay, Giacomo. On the second question, then I leave to Pablo again about the Wind Offshore Plan. Clearly, we started with this domestic Decarbonize the model, because we think this is more mature. There is a larger client basis. There is an opportunity To grow faster in renewable capacity and there is, let's say, this opportunity to create The joint and integrated model.
So I think that this is the first step that we have designed. And I agree with you that the other element that is quite interesting is the biorefining and The mobility client, the mobility client is the other side of the domestic client. The domestic client is exiting and taking the car Moving around. So he surely have the same mindset to receive Asset of the carbonized product. And you know that we have the second, let's say, in terms Capacity, we are the 2nd operator, the 2nd player for biorefining capacity.
We have the co finding that is a unique technology That give us a lot of flexibility, but we prefer to grow further and to, let's say, reinforce this model Before thinking to something more. Clearly, in this current configuration, All the technologies, this new business, many other in the overall evaluation of E and I Relatively discounted. So we have to think about that. And a summary, if you wanted to integrate about the business.
Yes. I can confirm that Looking forward, we are going to rebalance our pipeline portfolio between solar and wind. In the past, we focused particularly on photovoltaic project, but we are now In this, we have looking to geographies, wind options, wind projects under construction Currently in Italy, in Kazakhstan, we enter a new project in Iowa in the U. S. So what we are targeting is to come to 2024 with a split of Renewable Power Generation between wind and solar, I would say 60% solar and 40 Sandwind, which will also include, as you mentioned, offshore wind after our entry into Cobre Bank, we are also looking
The next question is from Lucas Herman of Exane. Please go ahead.
Thanks very much. And Cesca, thanks for the opportunity. And the commentary around trying to attract value is, I'm going to say, very encouraging or thinking much more about How to play with your portfolio. Just going back to another aspect of that, part of the strategy is clearly to realize Value through divesting some of your upstream positions. And I wondered how that market was looking for you at the present time.
I'd assume more robust, but any commentary around potential divestments, JVs, etcetera, would be helpful. And secondly, if I could just go back to LNG, a couple of questions really. First, Maracas, How much of the production in Maracas, I presume all of it goes through Bontang, but how much of it is actually contracted 2 other buyers at the present time, how much do you end up being able to play with? And staying with LNG, on Damietta, Two questions, unfortunately. One is, can you just explain the structure?
I presume that Damietta is a tolling facility itself and you told us and take the off Okay. And secondly, to what extent will that support Zohr's production at 3.2 Bcf a day through the course of this year? That's it, Francesco. Thanks very much.
Okay. About disposal then and the other question about LNG are given to Christian. Now the disposal clearly we are working. You know that we presented a plan of disposal for the 4 year plan in the range of €2,000,000,000 so practically €500,000,000 per year. And actually this year, we are expecting to have a net effect between disposal and acquisition Of let's say minus €500,000,000 because we are selling for €500,000,000 and potentially having, let's say, Potential acquisition in the range of $1,000,000,000 in different sector.
I'm not just referring specifically to upstream. We are clearly working on different dossier in the upstream side with there are at least 4, 5 assets that are Under tenure in certain case quite advanced and I think this process is maturing. There are That's coming from the dual exploration approach, assets that are related to, Let's say, mature countries where we consider no more coal in our portfolio and other opportunity That we could monetize and analyze through this eventually to a partial disposal of a smaller stake. So the process is coming in. It takes time because negotiation require a lot of detail.
And therefore, you will see some effects in the coming months. About LNG,
So on Miracles, I can tell you that a quarter of that production is going to go to the domestic market As per let's say the government requirement. And then the rest of it will be feeding the Bontang LNG facility And it will be already put onto the market, let's say, in the next, let's say, weeks months. And we are Discussing with the authorities and also with the potential of takers, clearly including Harry itself to Enter into long term agreements starting from, I would say, 2022 for securing the offtake of the LNG from the Maracas production. When it comes to Dermita, I think clearly you're right. Dermita is you can consider it as a tolling facility whereby And almost 50% of the equity and thus, let's say, provide the tolling arrangement.
When it comes to the link between The production of the meat and Zohr, maybe I'll leave the floor for Sande, which can give more color on that.
Okay. So regarding Zor and Dometa, clearly there is no A direct commercial link, but there is clearly a production link between the two facilities. It gives you just an example. Q1 2020, Zohr production averaged 2 Bcf In Q1 2021, Zohr production has averaged 3 Bcf per day. So clearly, Zohr is producing almost 50% of the gas produced in Egypt And it talks as a wind producer in the country.
So the opening of this export opportunity has contributed Essentially to reach the nearby the maximum capacity also or production benefiting certainly the upstream The Absorant side together with the Medison side.
And where do you forecast all will be in the Q4 this year?
So therefore
or on average?
The 4th quarter in average would be Certainly, above 3.3 Bcf per day, while the average of the year Where we include clearly less consumption during the summer will be around 2.7 Bcf per day.
Okay. Thank you very much.
The next question is from Bertrand de Hodee of Kepler Cheuvreux. Please go ahead.
Yes. Hi, Francesco. Two questions, if I may, related to gas prices. On Zohr, first, my understanding is that on your Zohr gas price realization, It was a formula linked to WAN twice with a floor at $4.2 and a cap at $6 per Mcf when oil price were above $60 oil. So my question is, Is there a lag effect on Zohr, meaning that could we see if oil price stay Above $60 in the next quarter, an uplift in your natural gas price realization?
That is my first question. And the second question is on the TTF PSV spread. So you clearly mentioned that you have suffered this quarter from this narrowing spread. And the reason behind that is, and you may share your view on that, It's for the new volumes from Chardanis, but in a way, is that the structural Now we enhance your action to renegotiate Some gas contract. Okay.
I leave it to Alessandro and to Christian about this answer
Sure. Regarding gas pricing, our formula, yes, I confirm there is a lag time effect And we will see the full benefit of the $60 per barrel towards the end of the year and beginning next year. I leave it to Christian to complete
Yes. On the spread, so clearly, let's say, you're right in the sense that The new flow of gas from the top pipeline has brought to the market roughly 6 Bcm going to 8 Bcm per annum Of extra capacity and this has clearly triggered let's say a reshuffle let's say of the supply stores to the country.
I would say the quarter
the Q1 has been also affected by clearly a very strong DTF price linked to the LNG tightening of the market, which actually brought away LNG from Europe towards Asia and in turn CTF was, let's say, Brought up by this dynamic, while SPSU actually was not really linked to that dynamic. So I would share Your idea that going forward maybe not at the level of the Q1, but in general the spread between PS4 and Might have a new equilibrium, which is not let's say the 20th 20 euro per meg per 1,000 cubic meter that we have seen in the last 2 years, but it's probably more in the range of the 10, 12. Having said that, this as you said Triggered in fact our renegotiation with our suppliers that we started already and will bear fruits in the coming months.
Thank you very much. It's been really helpful.
The next question is from James Hubbard of Deutsche Bank. Please go ahead, sir.
Hi, thank you. Good afternoon. Two questions. The first is, You mentioned real estate in context of renewables. I guess you're talking about brownfield industrial sites, But correct me if I'm wrong.
And if you are though, you seem quite excited about it. But in my mind, I'm just seeing Some old time field industrial sites and I don't see how much acreage that could be and why could you give some color as to why that's an exciting Aspect from the perspective of presumably installing solar panels. And then the next question was could you just clarify, I thought I heard you say on the call that Full year Refining and Marketing Chemicals, you're looking at EUR 400,000,000 EBIT. Did I hear that correctly? Thank you.
Yes. This second question and the first one, I'll return it to Alessandro. Now about the EBIT clearly, This is a revised guidance that includes a progressive improvement in the In margin, so potentially an average in the range of practically 1.8 to 1.9. It is half of the margin that we assume in the original budgeting. And we substantially Have this effect to have an EBIT in the range of €300,000,000 On top of that, there is the benefit of the chemical businesses that is adding an additional 100 versus the previous guide and this means that there is a reduction Of these two segments together in the range of less than €200,000,000 of EBIT.
About the real estate, in particular, the use of industrial plant, I leave this to Alessandro to provide you more color.
Yes, we We would refer to both industrial sites, but also to areas that are simply unused and they are under the control of the different entities in the public administration. So we think that this is On more a very significant and sizable potential That we would like to unlock also the outlook of the institutional profile of We are working in this new joint venture that has been incorporated So it is both Investica Sites and unused areas. Okay. And I guess the advantage in Italy is much faster permitting. Is that correct?
Yes. He's on permitting and we count very much on the simplification that the government Announced recently, together with the availability of the areas It's Alfa. In Italy, this is an issue. Once you exclude agricultural areas, then you're left With a significant constraint that is hindering, let me say, the growth of renewables in the last few years. Okay.
Thank you very much.
The last question is from Lydia Rainforth of Barclays. Please go ahead, madam. Hi, good afternoon. I have two questions, if I could. Firstly, on the biogas market that you mentioned earlier in the acquisition that you did, What is the scale of the market that you're seeing there?
And will that fit in the energy evolution part of the business? And then secondly, apologies, I think I missed this earlier on, but In terms of July and the review on prices and the launch of the share buyback scheme, is that just automatic in terms of the idea that there will be a buyback and you think you will
Okay. About the biogas, I leave The answer to Pino and Humberto and then I will conclude with the buyback. Thank you.
Okay. Pino speaking about the biogas, our recent acquisition of the company Friel that put In condition to have a very high pipeline of conversion of plan that produce gas From biomass to Biomethane, Compressed and Liquefied. And in particular, to increase a lot our Ability to enlarge this business, acquiring also the know how and the organization that is already in the field of this. Our ambition is no, our plan is to provide At the end of the plan, only biogas to the service station that sell Gas Compressed and Liquefied. Considering that only the pipeline Already a plan that should be transformed from gas to methane In a couple of years, we will reach more or less 50,000,000 There could be a meter per year of BioMetane.
This is a very large quantity to start.
Yes. About the distribution policy of the buyback, Clearly, you know that we designed this approach, this variable distribution Subject to oil price and this oil price reference will be fixed in July. So what I can say now is that clearly, ENI is in very good shape. I think that the quarter this year, Even the difference in the consensus and the assumption that were made by the application sensitivity proved one thing that We are back in generating cash, material free cash and that was just an early phase. So it is a quarter that Still miss of certain component, the marketing component, the gas and power component.
So there are still Rooms of improvement that will be clearly emerge that will emerge during the years. And also E and P We'll fully capture in the gas component that the price variation. For this reason, we presented that $50 reference that Proves that above at that level, there is a significant amount of free cash. Today, the price is $67,000,000 so it's even higher. The year to date is $62,000,000 And our buyback scheme start or is, let's say, triggered by an assumption of 56.
So we are in a good shape. The market is positive. There are very good signs. There are, let's say, good premises. Clearly, we will check this in July.
In July, we will have 6 months of market. The market, I would say it's rebounding. All the trend, in particular in the Western countries, proves that there is An increased phase of removal of the lockdown. There is only India now that is materially impacted and there are a lot of positive sign that, let's say, give us a very positive confidence for the future. So I think this is my last and positive sentence for this call.
I don't think there is any other question.
No, sir. I confirm there are no questions at this time.
Okay. So I thank you all and we remain in touch For any further clarification, this could be required. Thank you very much.
Thank you. Bye.
Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephone.