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Italian oil major Eni prepared to hive off business lines

Italian energy major Eni has said it is prepared to hive off parts of the company into separate businesses, setting it apart from rival Shell, which this week rejected calls for its break-up by an activist investor.

Chief executive Claudio Descalzi said the group was exploring several “possible projects”, in addition to a planned listing of its retail and renewable power divisions next year, with the aim of generating more value during the energy transition by moving some assets outside the company.

“That is a way to create a more dynamic company, a flexible company . . . and flexibility is essential, especially in an environment that is very volatile,” Descalzi said, speaking after ENI reported its third-quarter earnings.

The group is already discussing the creation of a combined upstream business in Angola with BP, and owns a 70 per cent stake in the Norwegian oil company Var Energi, in partnership with Point Resources AS.

Oil and gas producers seeking to pivot to clean energy face a range of competing pressures, from their higher cost of capital compared to pure renewables businesses, to the need to keep generating profits from legacy assets to pay shareholders and fund the transition.

Oswald Clint, an analyst at Bernstein, said ENI had a “totally different perspective” from Shell, adding that the Anglo-Dutch company’s larger scale and global integration and its ability to trade across oil, gas and power made a break-up less attractive.

“ENI is just saying if we break this up a bit there will be more efficient capital allocation from dedicated management teams who are allowed to control their own destiny,” he added.

The retail and renewable power business that ENI plans to list next year, while retaining a majority stake, is forecast to make adjusted earnings before interest, tax, depreciation and amortisation of €600m in 2021, rising to more than €1bn by about 2023, according to Descalzi.

Like its peers, Eni’s oil and gas business has performed well this year, driven by record gas prices and multi-year highs for oil in the past two months.

Adjusted net profit rose 54 per cent from the second quarter to €1.4bn, “the highest in recent years”, the company said, while cash flow from operations was forecast to reach approximately €12bn by the end of the year. About half of a €400m share buyback programme announced in the second quarter had been completed, it added.

The company has continued to invest in cleaner energy. It planned to have 2 gigawatts of renewable power installed or under construction by the end of the year, approximately triple its original target, Descalzi said.

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It also plans to fast-track the development of a newly discovered oilfield in west Africa, an increasingly rare commitment to a new hydrocarbons project by a European energy major.

ENI said the project, which will also supply gas to the domestic market in Ivory Coast, would be designed to have net zero operational emissions from inception by capturing all gas and combining the investment with other initiatives, including the development of renewables projects in the country.

Ivory Coast “needs the energy”, Descalzi said in defence of the decision. This year’s record gas prices showed “a clear imbalance globally between supply and demand”, he added.

The field is estimated to have up to 2bn barrels of oil and between 1.8tn and 2.4tn cubic feet of associated gas. Descalzi said he hoped to take a final investment decision on the first phase of the project by the end of 2022.

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