Eni - Q2 2024

Transcript

Operator (participant)

Good afternoon ladies and gentlemen and welcome to Eni's 2024 first half results conference call hosted by Mr. Claudio Descalzi, Chief Executive Officer. For the duration of the call you will be in listen only mode. However, at the end of the call you will have the opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and 0 on your telephone. Now I'm handing you over to your hosts to begin today's conference. Thank you.

Claudio Descalzi (CEO)

Good afternoon and welcome to our second quarter and first-half results conference call. This quarter confirms we are making significant strides forward in delivering on our strategy and the four-year plan set out in March. I will discuss our financial results in more detail, but in summary, our performance in the first-half exceeded our plan in terms of financial outcomes and cash flow generation, with capital expenditure and leverage showing a positive trend. Touching on some important milestones in the year so far, we are materially enhancing our upstream portfolio. We completed a high accretive acquisition of Neptune in January, already delivering significant value for Eni shareholders thanks to synergies in Indonesia, Norway and Algeria.

Following the step up of our exposure on the UKCS with Neptune, we have moved quickly and are creating one of the largest independent players in the country through the combination with Ithaca Energy. At the same time we are also making real progress in high grading our upstream portfolio, completing the sale of non-core assets in Congo and Nigeria and announcing the sale of Alaska which we expect to close before year-end. Furthermore, we are working on some additional transactions related to our dual exploration model that will mature in the coming quarters. Meanwhile, our upstream business continues to focus on its core activities. We have reported production growth of 6% year-on-year and have added significant oil and gas resources with notable exploration successes in Ivory Coast, Cyprus and Mexico.

On the businesses related to the energy transition, we are unveiling the value that the market places on our unique integrated chains in retail consumption and sustainable mobility. In March we completed the EUR 600 million equity investment into Plenitude by Energy Infrastructure Partners and this week have announced the potential investment by KKR into Enilive in a range between EUR 2 to 3 billion. Together the deals highlight an enterprise value of around EUR 22 billion, a remarkable improvement versus the marginal value these activities were accorded only a few years ago. We are also pleased with the operational progress we are making for Enilive, the FIDs of the two new biorefineries in Malaysia and South Korea and for Plenitude, the startups of its largest solar project to date, the Renopool solar park in Spain. Let's put all of these in context.

The energy transition is irreversible, but it will only be sustainable if it allows returns attracting private capital and this is what we are proving through our portfolio of activities that are highly valuable for the market and achieving precisely those objectives of profitability and economic sustainability. We are also growing upstream with higher margins and lower emissions to be net zero by 2030. We will grow underlying production by 4% per year over the planned period, reported production by 2% per year after disposals and crucially we will grow CFFO per barrel by 30%. Plenitude and Enilive will close to double EBITDA over the four-year plan and double again by 2030. This is an outstanding plan of growth that is attracting the interest of many investors and will ultimately take both businesses toward full market valorization through IPOs. Our transformation plan is more than an emerging option.

We are restructuring and reorienting our chemical presence toward a sustainable platform based on biochemistry and the circular economy as we did and continue to do in biorefining. Furthermore, CCUS has a key role in reducing emissions in hard-to-abate sectors and is also well suited to be an additional satellite in our ecosystem. In due course, taken together supported by a clear and focused financial framework, Eni is able to offer sector-leading CFFO per share growth rate over 13% per year and highly competitive shareholder returns. Turning to our results, pro forma EBIT incorporating our associate operations was EUR 4.1 billion in line with the last year even without the benefit of GGP offsets reported in 2023. Over the first six months pro forma EBIT was EUR 8.2 billion more than 60% of the original annual plan.

In the upstream we reported another excellent quarter with production up 6% year-over-year and pro forma EBITDA of EUR 3.5 billion capturing the oil price scenario and the recovery in gas market. Indeed GGP with EUR 334 million also reported a strong result in line year-over-year on an underlying basis and in what is a traditional seasonally lower quarter in the transition businesses. Enilive's pro forma EBIT was EUR 120 million reflecting the currently softer biorefining market conditions offset by seasonally stronger market income, confirming the advantage of integration along the value chain with the sales of products and services to retail and wholesale.

Plenitude reported an EBIT of EUR 149 million, 12% higher than the second quarter last year and giving a strong first half progression. A weaker scenario for refined products impacted our traditional refining, offset by resilient wholesale and trading activities and supported by high plants availability leading to a stronger result year-on-year. Chemicals in Versalis continue to face very challenging market reflected in our Q2 losses. Taxes rose in the quarter with a tax rate at 55% primarily due to mix effect within the upstream and across the income statement. More generally, our CFFO in the quarter is EUR 3.9 billion and EUR 7.8 billion for the first half, delivering a pleasing trend of efficient cash conversion reflecting good dividend income and a cash tax rate of around 30% consistent with the level we anticipate for the full year.

Our first half CFFO means we have already generated 55% of the planned annual amount. Organic CapEx is currently tracking below our gross guidance of EUR 9 billion full year figure, but our expectation remains unchanged. Net portfolio activity was still cashed out in the half year but in the quarter we generated proceeds of EUR 480 million being primarily the sale of shares of Saipem after payment of the final dividend and the restart of the buyback. Net debt fell from a Q1 peak. Let's focus for a moment on our upstream and transition businesses, the key current components of our value chain. This slide emphasizes the resilience of the result in the absence of GGP write-offs in E&P we have delivered excellent volume growth backed by continuous operation success to feed the business and progress portfolio.

High grading GGP continues to capture margin in our equity gas sales leveraging its excellent asset and logistic positioning. Financial performance in our transition businesses remain on track despite volatile and often challenging scenario conditions. This reflects the underlying resilience in these balanced and integrated businesses. As a result, we are maintaining growth in a consistently competitive fashion and investing for value and for the long term. This means we are able to launch new advantaged biorefineries projects and have a significant portfolio in new renewables capacity under construction to sustain our growth. Confirmation of the value we are creating is evident in the financial investment we have attracted in both Plenitude and Enilive. A strong balance sheet remains a key target in our plan providing resilience, flexibility and strategic optionality. In March we said gearing over the four-year plan would range between 15% and 25%.

The impact of the strategic acquisition we made to support our growth platform pushed gearing up toward the higher end of the debt range by the first quarter. But as we have seen in Q2, even with limited impact of disposal actions, leverage is already inflecting down, falling by almost 1.5 percentage points versus Q1. We are executing our disposal plan much faster than planned. As a reminder, in March we announced we would deliver EUR 8 billion of net portfolio inflows in the four-year plan and indicated we expected the divestment activity to be front-end loaded in the first six months. We have in fact advanced this program faster and for better value than anticipated.

The announced deals in Angola and Nigeria will reduce our leverage by around 3 percentage points while the sale of a 20% to 25% stake in Enilive will impact our leverage by a further 5% to 6%. This means by the end of the year we now expect leverage to be well below 20% and conceivably toward 15% on a performance basis awaiting the full cash in of these deals and other planned actions. We are working on several additional transactions that will further contribute to our portfolio rationalization and debt reduction. In other words, by the end of the year we expect to be able to provide visibility either by actions completed announced or with defined plans over the large majority of the transactions that will be roughly split 50/50 between upstream and the new transition businesses.

That brings me to our satellite model, a crucial source of cash to fuel our growth plan distribution and to maintain a strong balance sheet. 2024 has been important proof point for the distinctive model we have built. The Plenitude and Enilive transactions that will generate over EUR 3 billion in total represent the material deals of aligned capital and attractive multiples with valuable partners. This is only a portion of the EUR 11 billion cash we generated from dividend disposal and IPOs through our key satellites Enilive, Plenitude, Azule and Vår Energi since their creation. This new capital supports our funding needs and confirms the value we are creating in different businesses and anticipate cash flow generation from these long-term opportunities. Cash generated from our satellites has a double impact on our distribution, accelerating growth in our cash flow from operations.

As a result of the material increase of these businesses during the plan, Vår Energi and Azule production will grow together by 45% while Plenitude and Enilive are almost doubling their EBITDA, diversifying our business and improving our balance sheet, allowing us to progressively enhance our distribution policy. Finally, let me elaborate on the outlook for the remainder of the year. We now expect reported full year production to be at the top end of our guidance implying a growth rate of close to 4%. Similarly, GGP has now significantly de-risked our regional EUR 800 million pro forma EBIT guidance for the year and we now expect a full year figure of around EUR 1 billion. Our main transition businesses Plenitude and Enilive remain on course to deliver the combined guidance of EUR 2 billion pro forma EBIT this year.

Eni's full year outlook for adjusted EBIT and CFFO before working capital are expected to be around EUR 15 billion and over EUR 14 billion respectively at our current scenario and in that context we could confirm the buyback will be a minimum of EUR 1.6 billion. Thanks to the improved visibility on our divestment program, we will speed up repurchases through Q3 and Q4 versus our previous plan. Moreover, given the lower expected debt in the light of the progress of the M&A, we will be able in the third quarter to evaluate a further raise to the distribution share up to the maximum limit of 35% of the budgeted CFFO, which corresponds to a potential buyback value of additional EUR 500 million.

To help with the CFFO profiling for modeling purposes, we can confirm that dividend cash in from associates should closely approximate the net income. While the cash tax rate for the full year is expected to be around 31%, net CapEx is now expected to be under EUR 6 billion, significantly below the previous guidance. In line with our updated expectation that year end gearing will be well below 20% and pro forma on deals awaiting formal closing will be even lower than that. Finally, with the work now underway, we have already identified savings in excess of EUR 250 million for 2024. We are raising to around EUR 2 billion the full value of savings and simplification benefits over the planned period that we announced in March. To conclude, we are really pleased with the progress we are making.

Our strategy is to invest in our high-quality businesses to make Eni more profitable, fund the next phase of growth, work to highlight the full value of our assets, and to deliver a growing and competitive shareholder distribution. The first-half of 2024 has been, as we've seen, making clear strides forward in terms of operational delivery and the new projects that underpin that growth. This has translated into an excellent financial outcome, and in addition, we are also ahead of our expectations. Our divestment program in terms of proceeds, value realization, timing, de-risking the business, and accruing further value to shareholders. The Eni investment proposition is clear: highlight competitive growth in the key segments of business related to traditional and transition energy value realization through performant portfolio management, fast deleveraging, and strict investment discipline in prioritizing our significant pipeline of new projects.

A competitive and progressive distribution policy supported by the material growth in cash flow generation and balance sheet announcement. With this remark, I conclude our review of the quarter. And now, along with Eni top management, we are ready to answer your question.

Operator (participant)

Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and on on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one. At this time we will pause for a moment as participants are joining the queue. The first question is from Irene Himona with Bernstein. Please go ahead.

Irene Himona (Managing Director)

Thank you and congratulations on these numbers. My first question is on biofuels. If you could perhaps share your views on what is currently a rather oversupplied biofuels market. When and how would you expect rebalancing and for margins to start recovering? And my second question, it's quite unusual to flag a future potential buyback increase. I wonder if you can talk around the reason.

I think it's the first time you're doing it. Also would you agree that it is linked to the faster pace of asset disposals via stronger balance sheet? Thank you.

Claudio Descalzi (CEO)

Okay, thank you for the question. Stefano Ballista, CEO of Enilive.

Stefano Ballista (CEO)

Yes, there is no doubt that actually this quarter has been very challenging for the biofuel business. We recorded the lowest margin ever and this is a situation actually that is going in continuity with the first quarter and let me say very, very well expected. It's driven by fundamentals of short term with a short term view. So it's a transition phase pretty much defined by due to oversupply both in Europe and in U.S. and reasons are pretty much the same. We discussed in previous call like Sweden from one side and a specific step up in terms of capacity in U.S. plus some flows from extra flows from China. But what is really important is that this is a transition period. Obligation and mandate are strongly in place and defined.

I just quote some of them, like ReFuelEU Aviation is going to be in place starting from next year. It's going to lead to less than 1 million tons of extra demand in Europe and it's going to increase along the timeline. This is a regulation so there is no debate about when it's going to be fulfilled. Second core element is the Renewable Energy Directive III. It has been approved as we know each country has like 18 months to deploy. At country level targets are going to be doubled compared to current one from 14% to 29% in terms of energy content. This is going to be in place starting, let me say, from the second half of next year, given it has been approved the end of previous year and it's going to push for strong extra demand on top.

I want to mention there are also states that are even now changing some key rules. I want to quote Germany that actually starting from next year will consider the UER no more eligible for biodemand. So this is going to create an additional demand. So in short, this is a transitionary phase with a market rebalancing in the next future along the 2025 with a potential step up. This is the last comment coming from the first evidence on the anti-dumping procedure. We got preliminary and provisional duties that is going to in a way create a level the playing field with the current Chinese flow. This is going to give an improvement. It's difficult to quantify now, but along the year.

Claudio Descalzi (CEO)

Thank you, Stefano. I just want to add something because Stefano was very clear about regulation and what is going to happen in the next month. Looking at the market, what is happening, what we are experiencing in the market is that we have many, many, many requests from maritime operation, maritime operation, aviation, a lot of different kind of entities that they want to reduce their CO2 emissions. So we are signing a huge number of contracts with these different companies. So that is the firsthand evidence that we have in our business. Clearly we talk about this moment, this anomaly that we forecast. But we have to say also that Enilive reacted really very positively. Why this reaction compare also to other operators?

Because we are on the value chain, we are in the upstream, so we are in the feedstock with Agri-hub, with all the waste residues. So we try and we study that to stabilize our feedstock. We have our technology, we have our refineries, then we have huge retail. We are not just in the biofuel and biorefineries. And that helped us a lot in the quarter in this semester. So I think that is very important because that is a firsthand of a company people that every day are on the market and talk with the customers. So the second is for Francesco.

Francesco Gattei (CFO)

Yes, on the buyback. Clearly what we design since a few years is a progressive distribution that is linked mainly to cash flow from operations. But this cash flow from operations, let's say, sharing is clearly continually monitored in terms of performance, in terms of scenario, and in terms of balance sheet. So as you have seen, the buyback is defined in two ways. We have at the beginning of the year, the overall distribution dividend plus buyback that was a percentage of the budget. The cash flow from operations between 30% to 35%. We fixed our reference around the middle of that range and we announced the buyback of EUR 1.1 billion in the policy. Also we stated clearly that 60% of the upside related to cash flow from operations would have been shared with our investors. And we announced that in the first quarter results.

Now we are in a situation where we can look differently to the. To the bottom line of this distribution policy. The buyback that we originated designed on the basis of the cash flow of the budget. The idea is that substantially there is a room if in the third quarter all the deals and progress in the values disposal are confirmed and even enhanced to review that percentage. So there is still 2.3% of additional share of that amount that at the beginning of the year, if you remember, was 13.5 the cash flow from operation. It means that there is a potential of EUR 500 million, sorry, of additional cash flow for additional buyback.

I would also like to say that we have an immediate effect today of the improvement of our balance sheet and the visibility we have seen in the disposal plan, that is the acceleration. So we are speeding up the pace of our share buyback. And also in the third quarter we will have a review overall of the cash flow from operations, let's say analysis and if there is an additional increase of the potential cash flow from operations, there is again the application of the rule of the 60% upside. So we mentioned that there is a floor at the beginning of the year. We improved this floor in the first quarter. Now we are evaluating in the third quarter a potential step up with different mechanisms. So I think that is quite, let's say, progressive our distribution policy mechanism.

Operator (participant)

Thank you very much. The next question is from Josh Stone with UBS. Please go ahead.

Josh Stone (Head of European Energy Equity Research)

Thanks and good afternoon. Thanks for the presentation and congratulations on their strong results. Two questions, please. Firstly, coming back on disposals, you highlighted an acceleration or you've got good visibility on a very big chunk of your four-year program. Do you think there's a chance you could actually exceed your EUR 10 billion gross divestment target? Or, in other words, as you've been reviewing your assets and portfolio, are you finding there's more things to sell or at a higher value than you first expected? Or is this simply in line? Second question back on Enilive. One thing that struck me with the KKR announcement was that you're willing to sell up to 25% of the business and then possibly another 10% to another investor. So leaving Eni with 65%. So my question is why sell so much of Enilive?

Now I understand you get a good valuation, but once it's sold, it's sold. So are there particular attributes that these new partners are bringing to Enilive beyond a particular source of financing? Anything you can add there would be great. Thanks.

Claudio Descalzi (CEO)

So thank you for the question about disposal. I say something then maybe Francesco want to elaborate further? We have accelerate first of all because we have good assets. So the nature of assets. When we talk about upstream, we said that is a 50/50. So 50% upstream, 50% transition businesses. But we have good answers. So we have a lot of talks with different kind of entities and companies that they are interested to our asset. It's been very, very fast because we thought to deploy these divestments in the first two years. But in the first six months we are practically reaching the target. We can go up at least EUR 8 billion. Maybe yes more on the dual aspiration because we found a lot of resources. It's not a lot of investment.

We de-risk the asset and that could be a possible additional potential that we can explore in 2025. Clearly now we are focused on these projects that we announced and other that we are working on. They are mature but we will be ready in the third quarter to say more. But we have the potentiality to overcome and do better respect to our initial expectation. So better than the EUR 8 billion. I think yes, we can do that for Enilive. For Enilive is clearly we try to balance. There is a lot of interest. The valuation is very good. We want to invest because we have a big component of the two companies that is growth by biorefining its growth and renewables and EV charging point growth.

So I think that we need money and that we understood we have the proof that these companies are able to finance themselves without using our capital now debt. So I think that that is the reason we want to progress. We want to grow. And when we are able to find very strong good partners, good investors, very strong that can help the company that they share our view, our project. I think that is a good opportunity. I don't know if we are going to do that immediately because we have to finalize the deal yet. But that is there is a clear reason to do that. We want to grow, we want to create more value in these companies that are doing very, very well. We reach as a valuation through our strategic investors. EUR 22 billion for the company.

That is really a huge number considering that this business until a few years ago were in an indifferent part of Eni with a very low value. So I don't know if Francesco want. To add something

Francesco Gattei (CFO)

To say. We clarified since the beginning that the EUR 8 billion net was risked, let's say amount that was clearly based on a larger assumption. In that assumption of disposal we didn't include the outcome of this, let's say positive feedback from the market specifically on Enilive in terms of valuation and appetite. So there is clearly room to decide, prioritize and improve the overall guidance as is real as was said, good news, good news, absolutely. I think that was clear. It was good. And the other element clearly you mentioned about the potential disposal of a second stake. First of all, this is not included in our forecast. So it is again an upside eventually to be considered. We need first to conclude the discussion the negotiations that are ongoing with KKR.

It is a deal that had to be, let's say, finalized and after that we evaluate due to the fact there is quite a very strong appetite by the market if there is an opportunity to make an additional, let's say, joined deal related to that specific asset. So again is another positive sign that the assets are extremely, they say, interesting for the market and there is a lot of potential valuation coming on.

Josh Stone (Head of European Energy Equity Research)

Thank you.

Operator (participant)

The next question is from Biraj Borkhataria with RBC. Please go ahead.

Biraj Borkhataria (Head of European Energy Research)

Hi, thanks for taking my questions. The first one is just on your LNG growth plan. So you continue to build up your options but mostly through sort of integrated approach. We haven't seen you do too many sort of offtake deals, for example, Gulf Coast US. Is that something that you think would be a good addition to your portfolio or would you rather build up an integrated fashion? And then secondly, just going back to the last question on the financial framework, if I was to plug in the disposals in the market which I understand you've risked in your plan, but the ones that are already there, it's possible that I could see Eni at single-digit gearing by the end of 2025. So just wanted to get some thoughts on, you know, at what point does your balance sheet not need that additional cash?

And secondly, one of the things that's happened over the last couple of years is that you very clearly created more value through building these businesses than you would have by buying back shares. So wanted to get some color on how you think about the balance between, you know, paying out that capital, the excess capital, and then maybe increasing CapEx to build these businesses to more scale. Thank you.

Claudio Descalzi (CEO)

Thank you. The first question is for Guido Brusco and the second from Francesco.

Guido Brusco (COO)

Yeah, thank you. Thank you, Biraj. You spotted rightly so we are building a portfolio mainly of integrated projects which spans from the Congo project, which just started up and will increase up to 3 million tons per annum by the end of next year. We have Mozambique, we have Qatar.

We have in Indonesia, which is currently delivering gas for liquefaction only from the south hub of the Kutei Basin. But soon we'll have a second hub in the north part, which is pretty exciting. So, as you have seen, this is mostly organic. Reason being our successful exploration campaign in the past, in the past year. And we see much more value in the integration rather than buy and sell gas from third party. I might not rule out some small deals we can have in the future to complement our portfolio. But the growth is essentially linked to the organic component.

Francesco Gattei (CFO)

In terms of leverage, clearly you know what is our, let's say, guidance. Our reference is a range between 10% to 20%. We are moving fast towards the 15%. At the middle of that range, there could be, as we said, the upside that we have a lot of additional opportunity that has the materiality to push even lower that leverage. It is important for us to understand that reducing leverage is a value if there is no alternative. But if you have opportunity to invest the pipeline of projects and also clearly there is no financial sense, we are paying 1% net financial cost in that leverage. So I can push down the leverage to keep enough buffer for the bad times. But it's also important that I have opportunity where I can invest at much higher return.

So, is this the balance we want to keep within that 10 to 20 range? You could drop below in the lower part of that range. But this should be the area of comfort we want to stay.

Biraj Borkhataria (Head of European Energy Research)

Understood, thank you.

Operator (participant)

The next question is from Alejandro Vigil with Santander. Please go ahead.

Alejandro Vigil (Head of European Integrated Energy and Chemicals Equity Research)

Yes, thank you for taking my questions and congratulations for the Enilive transaction. My first question is about Plenitude. If in connection with the interest you're seeing Enilive, we could see also additional interest on selling stakes in Plenitude in the second half of the year. The second question is also regarding the low carbon strategy, particularly in terms of the CCS. The CCS is an area in which you were considering to invest hundreds of millions or billions in the coming years. And what kind of returns are you expecting from these investments? Thank you.

Claudio Descalzi (CEO)

Thank you, Alejandro. For Plenitude, I don't think second half, because we have other projects more mature. But we had a lot of interest also for Plenitude from big funds and other companies. So Plenitude is there, there is room, we have rooms. And clearly also Plenitude is in the same situation of Enilive. They need money to invest on their growth. They have a very important plan of growth. So it's not something that we can exclude. We have to understand that if these investors are serious and want really and share our projects. But we have room in Plenitude and we have also we have interest. CCS is not a question of much. We are going to invest CCS. There is becoming more and more real in terms of projects, in terms of acceptance.

And you know, in the U.K. we are proceeding in few days, we are in few days or weeks we are going to inject gas in Ravenna. So it's there we have a lot of interest from how to abate so AV industry, not just from Italy, but also from France, from Greece. So there is a strong interest, strong movement. Our investment in the model that we now we have in Italy and U.K. where we take care about transportation and storage. We don't talk about a lot of investments. And in any case our model that is based on existing facilities, depleted reservoirs, where we have everything practically because we have all the wells and platforms and compressor, so we have just to reverse the flow, maybe drill some injectors. But it's not a big investment.

So it's a big, big deal, big business, a lot of interest, and it doesn't need a lot of investments. So the only heavy part that's relatively expensive is the capture, and is not an investment; is an operating cost that we have to perform every time we capture the CO2, depending on the level of a percentage of CO2. So it's not really any very intensive capital deal project, but it's something that can be very useful for the transition; is going to reduce CO2 for the abatement. And we have a quite interesting advantage and also priority in the system because we are the only one that are performing real projects that are start production now in few months or in maximum one year. You want to add something, Guido?

Guido Brusco (COO)

Just to complement what you said, not that much capital and the capital needed will be mainly provided through project financing also which we've seen appetite from banks and institutions to fund those kind of projects.

Alejandro Vigil (Head of European Integrated Energy and Chemicals Equity Research)

Thank you.

Operator (participant)

The next question is from Alessandro Pozzi with Mediobanca. Please go ahead.

Alessandro Pozzi (Equity Analyst)

Good afternoon. Thank you for taking my questions. I have three. The first one is on GGP, the new guidance out of EUR 1 billion. Can you perhaps, perhaps elaborate on what? allowed you to raise the guidance to the EUR 1 billion and how you see opportunities in the market for the second half? I'm just trying to understand whether potentially there could be further upside to the EUR 1 billion in the second half. The second question is on chemicals. Of course your set of results is great. The only probable sore point was chemicals that still lost EUR 200 million. Can you give us an update on the restructuring plans for the division?

Finally, I believe only a few weeks ago the Constitutional Court in Italy declared part of the windfall tax unconstitutional. I was wondering whether there is any chance of recouping at least part of the taxes paid in the last couple of years? Thank you.

Claudio Descalzi (CEO)

Thank you, Alessandro. So I think Cristian is going to answer the first question and then Adriano for Versalis and then Francesco.

Cristian Signoretto (Director Global Gas and LNG Portfolio)

Yes. So on the raised guidance, there are three main major elements that actually allowed us to raise this guidance. One is the, I would say, still sustained trading environment. So we were able to capture value out of the volatility, especially, I would say, geographical spreads, especially in Italy, I would say, and oil and gas spreads. Second element is the anticipation of some renegotiation that we are expected to close later in the year. Actually we anticipated that in the second quarter that helped the result of the second quarter. And the third element is linked to an accounting, let's say, readjustment to that actually increased the EBIT, but without any impact on the cash flow. And when it comes to the second semester of the year, so we see still those elements kicked in in the guidance.

And so that's why we were able to raise that guidance to EUR 1 billion.

Adriano Alfani (CEO)

On Versalis. Thanks Alessandro, for the question. As you described, we are really grappling with a continuous negative momentum in terms of market raw material. Let's say all the variable costs remain pretty high for the chemical sector. There is a weak demand on the other side. There is also strong availability of product from import, also related to a very weak demand in China that is rerouting. A lot of product from the U.S. into Europe. So really a negative momentum in relation.

To the transformation plan that we present. Also in the capital market update, we are developing the plan taking into consideration all the elements that we present in March during the capital market update that will enable, as we said in March. Breakeven EBITDA 2025, break even EBIT in 2026 and a breakeven cash flow in 2027. Engagement with all the stakeholders are ongoing. We will continue this engagement in the. Second half and we are confident that. In the call for the result of third quarter, we'll be able to share. More ongoing implementation by Q4.

Francesco Gattei (CFO)

Okay. Instead, about the ruling of the Constitutional Court. Clearly the Court has recognized that under special circumstances there is the possibility to raise this levy or base it also on a peculiar structure, VAT, the delta of VAT basis. So it is one-time tax measure originated by the special circumstance. This does not exclude the possibility for us to move forth legal action in particular related to our gas trading arm that was mainly heavily impacted by the tax. And the worst case was not dealt by the Constitutional Court resolution. On the other side, we are going to pay in the next, let's say six months, the last installment of the tax for under EUR 50 million. And also in that case, we will move our appeal for, let's say, raising our reason about these taxes.

We will continue to provide or to ask for compensation or reduction in certain cases.

Alessandro Pozzi (Equity Analyst)

Thank you.

Operator (participant)

The next question is from Alastair Syme with Citi. Please go ahead.

Alastair Syme (Managing Director)

Hello. Can I just clarify the position on whether there might be a future IPO of Enilive? I think to the point that was made earlier, you might come down to a 65% stake. So it was a question of whether you could go lower than that. Or is now a future IPO really being held as a future exit for one of the partners like KKR? And then secondly, it's widely known out there that there's a large farm-in opportunity in Namibia. I wonder if you could talk in concept, could you see a role for Azule to be used as an acquisition vehicle? I guess more to the point, are you prepared to put capital into Azule if a good opportunity came up?

Claudio Descalzi (CEO)

Thank you for Enilive's first question. Francesco can give some remarks.

Francesco Gattei (CFO)

Yeah. Clearly the IPO is the goal both for Enilive and Plenitude. The structure of the IPO will require a certain mechanism. Also it is important to understand which is the amount that the funds that are involved, first of all, to understand which is the percentage overall of the funds, if it is one or two. Secondly, which is the kind of funds that have to be left, say, or have to exit in the liquidity event of an IPO. And in that case there will be in any case, let's say, larger room for them at the beginning than for Eni. But it's something that have to be structured. First of all, we have to do the deal with KKR eventually the second deal. So I think that is quite premature now thinking on the structure of an IPO that will occur in a number of years. In any case, there are different options.

Claudio Descalzi (CEO)

Before giving the floor to Guido, just to clarify something. Normally we go through dual acquisition models. That means that we go through acquisition and then we sell. It's not our habit to do the vice versa. We are not really interested to buy something that has been discovered by somebody else. Because we are huge amounts of exploration block, huge amount of discoveries. Azule made an entry recently in an exploration block, the PEL 85. So our strategy, you know very well, is different. We are not really seeking the risk exploration. We produced the risk exploration. So Guido, I think I said everything. Yeah, clear. No doubt about it.

Alastair Syme (Managing Director)

Can I just ask back to the IPO concept? Would you be prepared to fall below 50% stakeholding in either Plenitude or Enilive at some point in the future?

Francesco Gattei (CFO)

In planning to the Enilive, we want to do an IPO at the proper time with the percentage the market will absorb. There will be different steps in order to decide what will be the percentage we are going to hold. Speaking about what is our ultimate percentage in these two entities is something that is extremely, extremely premature now.

Alastair Syme (Managing Director)

Okay, thanks very much.

Operator (participant)

The next question is from Lydia Rainforth with Barclays. Please go ahead.

Lydia Rainforth (Managing Director)

Thank you and good afternoon. Actually, quite a lot of my questions have been asked, but two, if I could just coming back to the distribution policy and the additional potential put I think up to about EUR 500 million buyback. What would actually stop you from doing that? So when you get to October, you look at the balance sheet. Okay, we're in a good place. We've got Enilive coming through. What would actually stop that from happening? And then secondly, this is just more of a big picture question, Claudio, but in terms of the satellite model, how many satellites do you think is actually manageable? And by that I'm thinking you've got different now. You've got Ithaca up in the North Sea. You've got Azule in Angola. Will have Enilive will have Plenitude.

How do you keep that kind of Eni ethos kind of going across everything? Thanks.

Claudio Descalzi (CEO)

The first question, distribution policy. Who is preventing us to do that now? Because we are prudent and we want to have a clear vision. Everything clear we can, we could do now because everything is mature. But we want to be sure that all the capital allocation is done in the right way is a responsibility. We don't want to run. We don't need now to run. It's a question of a couple of months. So I think that first of all we have to understand everything is progressing as we think, as we hope. And it's likely that everything will be good. But that is the main reason on the satellite model. Francesco, if you want to say something, any respect to this satellite,

Francesco Gattei (CFO)

I think that it proves that with the experience that we have, let's say, mature so far, both with Vår, with the experience of Azule and now with Ithaca, that's yet to be completed, as you know. I think that we prove there is an opportunity to create this model. This is a bit hybrid versus the traditional model of an oil and gas interaction. The company that wanted to have all the control of everything in different. You need to have a good management, good capability to deal with the boards, having a strong technical relationship, having the understanding of your counterpart, of the market rules. So far I think that we have seen only benefits in what we have designed as a satellite and the capability to manage the complexity that this will imply.

Claudio Descalzi (CEO)

So I'd like to add that clearly we are going through a different kind of model. I think that is a very good model, but that is a challenge for us. What is the challenge? That we have to be useful. We have to attract our satellite. These new companies, they have to understand. Or we have to show that we give added value to them. So that is a challenge where we give added value. We give value on technologies. All the technologies that the satellite are using, our proprietary technology. We update, we update the software, the hardware. So there is a relationship that is going to be. Is already. Because we are experiencing a very strong relation from a strict technical point of view, from a management point of view. Because on this new technology we had in the past to reskill upskill our people.

Our people is going these companies. And there is a strong link, umbilical link, because the skill and the technical capability is something that we produce in the corporate, in the corporation. So I think that is completely different. Different, but clearly we are facing a different period. We are facing the transition, we are facing a different kind of world. We cannot think that we cannot continue to use model that we used 30, 40 years ago. And that is a reason why we moved few years ago, because we understand that the future will be different. We must have different tools. Clearly then. Well, that technology and really the interest that everybody can show on us. Because what happened in the different kind of new biorefinery project worldwide, people call us because they are interested at our competencies and know-how and technologies.

So I think that we have gas, we have oil, but we have also very strong resources. That is technology. Know-how, R&D, and skilled people.

Operator (participant)

The next question is from Peter Low with Redburn Atlantic. Please go ahead.

Peter Low (Managing Director of Energy Equity Reseach)

Thanks. The first was on upstream production. You said that that's now expected to be towards the top end of the guided range. What have you assumed in terms of the timing of disposals within that? And then can you perhaps update on some of the 2024 startups in the plan? Specifically Cassiopea and Baleine Phase 2, how are they progressing? And then the second question was on your biorefining targets. I think you'd previously targeted 3 million tonnes of capacity by 2026. I thought that included a contribution from Pengerang. I think in the press release today you said that that might not start up until 2028. Does that 3 million tonne target still hold or could that slip a bit? Thanks.

Claudio Descalzi (CEO)

The first question is for Guido and the second one for Stefano.

Guido Brusco (COO)

As we said, we are expecting to be at the upper bound of the guidance and this is being reinforced by number of things. First, the good performance on the first half driven by Ivory Coast, Indonesia, Congo and Libya and the confidence we are growing on the startup Cassiopea as we speak. We are at the very last stage of commissioning and first gas is coming soon, is coming expected in early August on Baleine Phase 2, we just completed the naming ceremony the day before yesterday. So the ship soon will sail, will be in country in September and building on the experience of the phase one, we expect a couple of months of final integrated commissioning. So this startup will also happen.

At the end of the year. So the uptime was also pretty low and all the major maintenance are factored into our budget. So I would say we are pretty confident to be in the upper side of the guidance.

Stefano Ballista (CEO)

Yes. On biorefining, actually all our choices are driven by two key drivers. The first one is to ensure state of the art biorefining capabilities. This means capability to process 100% waste and residues, high flexibility in order to shift from sustainable aviation fuel to HVO depending on value pool, driven by market volatility and market demand evolution. Very efficient and effective process. These required a detailed deep dive in order to ensure the maximum value creation in whatever context. And second, having a view about market evolution, the second driver has been getting the right phasing in terms of cash out. So CapEx and value creation in order to maximize the IRR of each investment. Given these two main drivers, we rephrased in a minor way capacity development. We're going to get to the 3 million within the 2027.

Operator (participant)

Next question is from Michele Della Vigna with Goldman Sachs. Please go ahead.

Michele Della Vigna (Managing Director)

Thank you and congratulations again for the strong results. Two questions if I may. The first one is on your tax rate. It's been quite volatile in the last few quarters. I was wondering what you think would be the best assumption for us to use in the coming quarters. And then secondly, I wanted to come back to Egypt. It looks like they are committing to import of LNG which effectively implies there will be shortages in gas even potentially in winter for the next couple of years. In the last five years you've effectively turned that country from a net importer to a net exporter of gas.

I was wondering if there was anything through exploration or development you could do there, especially connected to your Cronos discovery in Cyprus which seems to have very good, well deliverability and whether there was effectively a political agreement to potentially get it into Egypt. Thank you.

Claudio Descalzi (CEO)

Yes, Michele, you are right. I mean it's open source information that Egypt has awarded 20 cargo for the summer from now to September. We don't have more visibility than what we, I mean the open sources can provide. Clearly things may change. Import from neighbor country or demand in the country may not raise as expected. So we cannot rule out that few cargo may be exported next winter. But for sure it's not very likely as it was, as it was this year. In terms of attractiveness of Egypt as a potential hub, clearly there is this potential. Egypt has capacity in LNG, capacity of liquefaction, capacity of processing. But this requires alignment between many stakeholders, private but also government. I know that Egyptian government is working on that but it's quite a long journey.

Francesco Gattei (CFO)

About the tax rate. Yeah. It's correct that there is volatility, but volatility is driven by seasonality, by the contribution of the different segments in line with their seasonal cycles. You know very well that if the contribution of the results are driven by GGP or by the downstream, this will help to reduce the tax rate. While in the quarter where E&P is dominating, the tax rate is a bit higher. Expectation for the year is to have a 50% tax rate in line. What we, we also present at the beginning of the year just a bit above, but it's not material very normal fluctuation and we expect that this 50% will be a top end in the coming years. So we're probably something in the range of 45% in the next four-year plan.

Michele Della Vigna (Managing Director)

Thank you.

Operator (participant)

The next question is from Matt Smith with Bank of America. Please go ahead.

Matt Smith (Managing Director)

Hi there. Good afternoon. Thanks for taking my questions. Two please. I mean lots focused quite rightly on your net CapEx today and the progress there. I just wonder if I could come back to the gross CapEx, please. I think like you alluded to, the run rate, if we look at the first half result is tracking closer to EUR 8 billion rather than the EUR 9 billion full year guidance. I just wonder if you could give us any color on that and what sort of activity set we're looking at for the second half of the year, just to conceptualize how that number might move higher throughout the year. And then my second one would be another question to come back on the buyback if I could. And that was really just whether you would be comfortable.

You're talking about the potential for an additional EUR 500 million of the buybacks. Would you be comfortable executing that if the disposals come through in the current macro environment? I guess is my question, because I suppose I just want to clarify whether, whether you're targeting 35% of CFFO in that scenario, whatever that CFFO might be, or whether you're looking to execute on EUR 500 million of additional buybacks. And I guess I asked the question because I note your CFFO guidance still assumes a Brent price of $86 for the full year, so slightly ahead of the price on the screen at the moment. Thank you.

Claudio Descalzi (CEO)

So for the first question, gross CapEx, what I said during the presentation, that our expectation is to stay close, lower, but close to the EUR 9 billion that was our original target. It is true that now if we consider what we spend, the spending in the first half, we are a little bit more than EUR 8 billion. So we have space, what we have, we have activity that is linked to exploration, to development, so we can save something, we can maybe reduce. But our expectation linked to the activity we have not only in the upstream is to stay close to our initial forecast. It is likely that we can spend a little bit less. But that at the moment is our target for the buyback, Francesco.

Francesco Gattei (CFO)

The buyback. Clearly the scenario, if we apply the scenario of today, this will not make a major change to the overall cash flow from operation in the year. So we are speaking about probably a potential impact in the range of EUR 300 to EUR 400 million. So this is something that is almost equivalent to a 1% leverage impact. This will not be the major, let's say, driver of our decision, a major driver of our decision. Clearly the capability to complete, to execute, to have visibility to the disposal plan. So the 1% is not a big effect that will change the view.

Operator (participant)

The next question is from Martijn Rats with Morgan Stanley. Please go ahead.

Martijn Rats (Head of European Oil & Gas Equity Research)

Hi. Hello. I don't think I've ever said this, but on this occasion, congratulations on a great quarter. That was really very impressive. A lot of questions have been raised, but I have one left and that is that I noticed that on slide 3 of the pack that you sent around, it reiterates the EUR 17 billion CFFO guidance target for 2027. So it's a few years out, but it's another step up. And I was wondering if you felt it appropriate if we were to assume the same structure of the payout on that number as you're now talking about for this year. That is 35% payout on the first EUR 13.5 billion and then 60% on the increment above that. Is that sort of structure of payout also applicable to the CFFO guidance for 2027?

Francesco Gattei (CFO)

You know that we have this guidance 30-35 and we revise every year we announce the Capital Markets Day, take into account of various elements including clearly the scenario, including the leverage, including the structure of the company moving eventually on growing the role of the transition business. Also change the volatility of the results. So it is quite premature to recognize or to announce today what will be potentially the payout. But the logic behind the distribution policy is clearly to improve even the payouts on the basis of the enhancement of the strength of the company. So that will be a natural consequence of this evolution.

Martijn Rats (Head of European Oil & Gas Equity Research)

Okay, thank you.

Operator (participant)

The next question is from Matthew Lofting with J.P. Morgan. Please go ahead.

Matt Lofting (Energy Equity Research Analyst)

Thanks for taking the questions. You've covered a lot of ground already, including a lot of the questions that I had. So I'll just limit myself to one I wanted to come back to. GGP performance in the first half of the year looks strong. And it struck me that comes in an environment where the conditions for trading and optimization through gas markets have perhaps been less consistent than was the case over the prior couple of years. So I wonder if you could talk a bit about what you think has differentiated GGP's performance through the first half of the year. And I ask partly because the financial results do suggest when we look forward to 2025 plus, that the EUR 800 million baseline per year that you provided in March perhaps increasingly looks quite conservative. Thank you.

Cristian Signoretto (Director Global Gas and LNG Portfolio)

So, thanks for the question. Let's say, as we anticipated during the strategy meeting, you know, the market has been reducing in terms of volatility. I mean, just to give you a number, I mean last year, year in the first six months, the daily TTF movements were around EUR 2.2 to EUR 2.3 per MWh. This year we are clearly down to EUR 0.9 per MWh. So this is a trend which is actually happening. Having said that, this is still volatility which actually gives opportunities into the market vis a vis. If you want the period before the energy crisis. And as I told you, especially on the geographical spreads, you know that we have substantial activity in Italy and that actually helped during the first six months. Second, the volatility, you know, combined volatility between Oil Brent and NBP also, that actually gave us opportunities.

Those were the two elements, I'd say in the first six months that were behind, let's say, the results.

Jon Rigby (Head of Investor Relations and Strategic Analysis)

It's Jon Rigby here. I'm going to have to call it to a close. We've run about 10 minutes over, but hopefully that's a reflection of the interest in these results. So thank you very much for your questions. Anybody who has follow-up questions, please contact me or one of the team and we can arrange to help you with any questions that you have. So thank you very much. I know you've had a long week. Get some rest, have a good weekend. We'll speak soon.

Operator (participant)

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.