Eni SpA

MIL:ENI

Earnings Call Analysis

Transformative Growth and Robust Financials

The first half of 2024 has been transformative for Eni, with production up by 6% year-on-year and significant strides in the energy transition. The company has secured multiple high-value deals and is progressing rapidly on its divestment program, expecting leverage well below 20% by the year's end. Full-year production is forecasted to grow close to 4%, and EBIT is projected at around EUR 15 billion. Upstream production is bolstered by key projects in Ivory Coast and Indonesia. Transition businesses like Plenitude and Enilive are poised to double EBITDA by 2030, attracting substantial investment interest, further underlining the company's robust financial health and commitment to sustainability.

Introduction and Financial Highlights

In the first half of 2024, Eni has demonstrated a solid financial performance, surpassing its initial targets. The company reported a significant enhancement in its financial outcomes and cash flow generation. A key highlight includes the high-accretive acquisition of Neptune in January, which has already brought substantial value through synergies in Indonesia, Norway, and Algeria. Alongside this, Eni has enhanced its upstream portfolio with a strategic combination with Ithaca Energy, creating one of the largest independent players in the UK.

Strategic Upstream Portfolio Moves

Eni has been actively rebalancing its upstream portfolio, completing the sale of non-core assets in Congo and Nigeria while progressing with the sale of its Alaska assets, expected to close by year-end. Despite these divestments, the company reported a 6% year-on-year growth in production, underscoring its resilience and strategic focus. Significant exploration successes in the Ivory Coast, Cyprus, and Mexico further bolster Eni's strong upstream performance.

Advancements in Energy Transition

The company has made significant strides in energy transition initiatives. It completed a EUR 600 million equity investment into Plenitude by Energy Infrastructure Partners and announced a potential investment by KKR into Enilive, valuing these entities around EUR 22 billion collectively. Eni is not just focusing on traditional energy sources but also on sustainable mobility and retail consumption, marking substantial progress in its biorefinery projects in Malaysia and South Korea. The energy transition strategies aim for profitability and economic sustainability, with plans to achieve net-zero emissions by 2030.

Guidance and Future Projections

For the rest of the year, Eni expects its reported full-year production to be at the upper end of its guidance, implying a growth rate close to 4%. The Gas and Power division (GGP) has successfully derisked its initial EUR 800 million pro forma EBIT guidance for the year, now expecting approximately EUR 1 billion. The main transition businesses, Plenitude and Enilive, are on course to meet their combined guidance of EUR 2 billion pro forma EBIT this year.

Financial Discipline and Capital Allocation

The company has generated EUR 11 billion from dividends, disposals, and IPOs from key satellites like Enilive, Plenitude, Azule, and Vår Energi. This capital has significantly bolstered Eni's funding capabilities, enhancing both its balance sheet and distribution policies. Eni plans to maintain a minimum buyback of EUR 1.6 billion for the year and has identified savings of over EUR 250 million for 2024, raising the total value for savings and simplification benefits over the planned period to around EUR 2 billion.

Market Outlook and Strategic Focus

Despite encountering market challenges, particularly in the chemical sector which reported a EUR 200 million loss, Eni remains focused on achieving breakeven EBITDA in 2025, EBIT in 2026, and cash flow in 2027 for this segment. The company is also optimistic about market rebalancing in biofuels and CCS being pivotal for reducing emissions in hard-to-abate sectors. Eni's strategic moves, including potential asset disposals and new technology investments, reflect its commitment to sustained growth and transition leadership in the energy sector.

Conclusion

Overall, Eni's strong performance in the first half of 2024 is a testament to its strategic financial management and robust portfolio rebalancing. The company is well-positioned for growth, leveraging both traditional and transition energy sectors. With a clear focus on enhancing shareholder value and achieving net-zero emissions, Eni's future outlook remains positive.

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon, ladies and gentlemen and welcome to Eni's 2024 First Half Results Conference Call hosted by Mr. Claudio Descalzi, Chief Executive Officer. [Operator Instructions] Now I'm handing you over to your host to begin today's conference. Thank you.

[Claudio Descalzi, executive]

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 4-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 noncore 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 other significant oil and gas resources with notable exploration success in Ivory Coast, Cyprus and Mexico. On the business, 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 -- retail consumption and sustainable mobility. In March, we completed on the EUR 600 million equity investment into Plenitude by Energy Infrastructure Partners. And this week, we have announced the potential investment by KKR into Enilive in a range between EUR 2.5 billion, EUR 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're also pleased with the operational progress we are making for Enilive, the FIDs of the 2 new biorefineries in Malaysia and South Korea and for Plenitude, the start-up of its largest solar project to date, their Renopool solar park in Spain.

Let's put all of this 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 emission to be net zero by 2030. We will grow underlining 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 4-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 emerging option. We are restructuring and reorienting our chemical presence towards a sustainable platform based on biochemistry and the circular economy as we did and continue to do in biorefining. Furthermore, CCUS is a key role in reducing emission in hard to abate sectors and is also well suited to be an additional satellite in our system in due course.

Taken together, supported by a clear and focused financial framework, Eni is able to offer a sector-leading CFFO per share growth rate over 13% by -- per year and highly competitive shareholders' 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 one-offs reported in 2023. Over the first 6 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-on-year and pro forma EBIT of EUR 3.5 billion, capturing the oil price scenario and the recovery in gas market. Indeed, GGP with EUR 334 million reported a strong result in line year-on-year on an underlying basis and in what is a traditional, a 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 pro forma EBIT of EUR 149 million, 12% higher than the second quarter last year and giving a strong first half progression. A weaker scenario for refining products impacted our traditional refining, offset by resilient wholesale and trading activities and supported by high plant availability, leading to a stronger result year-on-year. Chemicals in Versalis continued to face very challenging markets reflected in our Q2 losses.

Taxes rose in the quarter with accounting 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 cash 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 one-offs. In E&P, we have delivered excellent volume growth, backed by continued exploration 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 investments we have attracted in both Plenitude and Enilive.

Strong balance sheet remains a key target in our plan, providing resilience, flexibility and strategic optionality. In March, we said gearing over the 4-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 that 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 that 4-year plan and indicated we expected the divestment activity to be front-end loaded. In the first 6 months, we have, in fact, advanced this program faster and for better value than anticipated.

The announcement deal in Alaska and Nigeria will reduce our leverage by around 3 percentage points, while the sales of a 20%, 25% of Enilive will impact our leverage by further 5%, 6%. This means by the end of the year, we now expect leverage to be well below 20% and considerably towards 15% on a pro forma basis, awaiting the full cash-in of these deals and other planned actions. And we are working on several additional transactions that will further contribute to our portfolio enhancement 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 transaction that will be roughly split 50-50 between upstream and the new transition businesses.

That brings me to our satellite model, crucial source of cash to fuel our growth plan, distribution and to maintain a strong balance sheet. 2024 has been an important proof point for the distinction model we have built. The Plenitude and Enilive transactions that will generate over EUR 3 billion in total represent a 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 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 derisked our original 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 transaction businesses -- transition businesses, Plenitude and Enilive remain on course to deliver their combined guidance of EUR 2 billion of pro forma EBIT this year. Eni full year pro forma 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 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 repurchasings through Q3 and Q4 versus our previous plan. Moreover, given the lower expected debt in the light of the progress M&A, we will be able, in the third quarter to evaluate further raise to the distribution share up to the maximum limit of 35% of the budget 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 associate should closely approximate the next -- 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 the -- for saving and simplification benefit 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 align the full value of our assets and to deliver a growing and competitive shareholders' distribution. The first half of 2024 has been -- has seen us making clear stride forward in terms of operational delivery and the new project that underpin that growth. This has translated into an excellent financial outcome. And in addition, we are also ahead of our expectation, our divestment program in terms of proceeds, value realization timing, derisking the business and accruing further value to shareholders.

The Eni investment proposition is clear, highly competitive growth in the key segment of business related to traditional and transition energy, value realization to 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 enhancement.

With these remarks, I conclude our review of the quarter and now along with Eni top management, we are ready to answer your questions.

[Operator]

[Operator Instructions] The first question is from Irene Himona with Bernstein.

[Irene Himona, analyst]

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. So I wonder if you can talk around the reason. I think it's the first time you're doing it. And also, would you agree that it is linked to the faster pace of asset disposals via a stronger balance sheet?

[Claudio Descalzi, executive]

Okay. Thank you for the question. Stefano Ballista, CEO of Enilive can take that.

[Stefano Ballista, executive]

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, ReFuel Aviation is going to be in place starting from next year, is going to lead to plus than 1 million tonne of extra demand in Europe and is going to increase along the time line. And 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 #3. It has been approved, as we know, each country has like 18 months to deploy it 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 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 [indiscernible] no more eligible for bio demand and so this is going to create an additional demand. So in short, this is a transitionary phase with the market rebalancing in the next future along the 2025, with a potential step up and this is the last comment, coming from the first evidence on the antidumping procedure. We got preliminary and provisional duties that is going to, in a way, create a level played field with the current Chinese flow, and this is going to give an improvement. It's difficult to quantify now but along the year.

[Claudio Descalzi, executive]

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 main requests from 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 first and evidence that we have in our business.

Clearly, we talk about this moment, this -- and normally that we forecast but we have to say also that Enilive reacted really very positively. Why this reaction compared also to other operators because we are on the value chain. We are in the upstream. So we are in the feedstock with all the waste and residue. So we try and we study that to stabilize our feedstock. We have our technology. We have our refineries, then we have a huge retail. So we are not just in the biofuel and biorefineries and that helped us a lot in the quarter and the semester. So I think that is very important because that is the first hand of a company, people that every day are on the market and talk with the customers.

So the second is for Francesco.

[Francesco Gattei, executive]

Yes. On the buyback, clearly, what we design since a few years is a progressive distribution that is linked mainly to cash flow from operation but this cash flow from operation, let's say, sharing is clearly continually monitored in term of performance, in term of scenario. And in term of balance sheet. So as you have seen, the buyback is defined in 2 ways. We have -- at the beginning of the year, the overall distribution, dividend plus buyback that was a percentage of the budgeted cash flow from operation 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 operation would have been shared with our investors and we announced that in the first quarter results. And now we are in a situation where we can look differently 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 room, if in the third quarter, all the deals and progress in the various 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 the [ 13.5 ], the cash flow from operation. It means that there is a potential of EUR 500 million, of additional cash flow -- of additional buyback.

I will also to say that we have an immediate effect of 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 buyback shares. And also in the third quarter, we will have also review overall of the cash flow from operation, let's say, analysis. And if there is an additional increase of the potential cash flow from operation, 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]

The next question is from Josh Stone with UBS.

[Joshua Eliot Stone, analyst]

Congratulations on the 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 4-year program. So 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 it simply in line?

Second question on -- back on Enilive. One thing that struck me with your -- the KKR announcement, was that you're willing to sell up to 25% of the business and possibly another 10% to another investor. So you're 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 is there other particular attributes that these new partners are bringing to Enilive, beyond their particular source of financing? Anything you can add there would be great.

[Claudio Descalzi, executive]

So thank you for the question about disposal. I say something and then maybe Francesco want to elaborate further. We have accelerate, first of all, because we have good assets. So the natural assets, when we talk about upstream, we said that is a 50-50, so 50% upstream, 50% transition businesses. But we have good assets. So we have a lot of talks with different kind of entities and companies that they are interested to our asset. Has been very fast because we thought to deploy this divestment in the first 2 years. But in the first 6 months, we are, practically, we are reached the target.

We can go up, on this EUR 8 billion, maybe yes, more on the dual exploration because we found a lot of resources, it's not all investment, we derisk the asset and that could be a possible additional potential that we can explore in the 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, it's clearly, we try to balance. There is a lot of interest. The valuation is very good. We want to invest and we -- because we have a big component of the 2 companies that is growth, biorefineries growth and renewables and Be charging point growth. So I think that we need money and that we understood, we have the proof that this company are able to finance themselves without using our capital, not 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 investor, 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. So -- but that is -- there is a clear reason to do that. We want to grow. We want to create more value in this company that are doing very, very well. We reached, as a valuation through our strategic investors, EUR 22 billion for the 2 company, that is really a huge number considering that this business, until a few years ago were in Eni, in different parts of Eni, with a very low value.

So I don't know if Francesco want to add something.

[Francesco Gattei, executive]

Just to, let's say, we clarify since the beginning that the EUR 8 billion net was a risk, 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 term of evaluation and appetite. So there are -- there is clearly room to decide, prioritize and improve the overall guidance as we said.

[Unknown Executive]

This is a good news.

[Francesco Gattei, executive]

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 event really to be considered. We need first to conclude the discussion, the negotiations that are ongoing with KKR. It is a deal that have to be, let's say, finalized. And after that, we evaluate, due to the fact there is a quite a very strong appetite by the market, if there is an opportunity to make an additional, let's say, joint deal related to that specific asset. So again, it's another positive sign that the assets are extremely, let's say, interesting for the market and there is a lot of potential valuation coming on.

[Operator]

The next question is from Biraj Borkhataria with RBC.

[Biraj Borkhataria, analyst]

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 U.S. Is that something that you think would be a good addition to your portfolio? Or would you rather build up in a 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 listed in your plan but the ones that are already there. It's possible that I could see Eni at sort of single-digit gearing by the end of 2025. So just wanted to get some thoughts on, at what point does your balance sheet not need that additional cash?

And secondly, one of the things that has 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 just want to think -- wanted to get some color on how you think about the balance between paying out that capital, the excess capital and then maybe increasing CapEx to build these businesses to more scale?

[Claudio Descalzi, executive]

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

[Guido Brusco, executive]

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 tonne per annum by the end of next year. We have Mozambique. We have Qatar. We have Indonesia, which is currently delivering gas for liquefaction only from the south above 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 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, executive]

In term of leverage, clearly, you know what is our, let's say, guidance, our references range between 10% to 20%. We are moving fast towards the 15%, the middle of that range. There could be, as we said, the upside. 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 the enough buffer for the bad times but it is also important that I have opportunity where I can invest at much higher return. So is -- this is the balance we want to keep. We think that 10% to 20% range, you could drop below in the lower part of that range but this should be the area of comfort that we want to stay.

[Operator]

The next question is from Alejandro Vigil with Santander.

[Alejandro Vigil, analyst]

Yes. And congratulations for the Enilive transaction. My first question is about Plenitude. It's in connection with the interest you're seeing in Enilive, we could see some also additional interest on selling stakes in Plenitude in the second half of the year.

And the second question is also regarding the low carbon strategy, particularly in terms of the CCS. The CCS is an area which you are considering to invest hundreds of millions or billions in the coming years. And what kind of returns are you expecting from these investments?

[Claudio Descalzi, executive]

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 planning to do this 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 to really -- and share our projects but we have room in Plenitude and we have also -- we have lots of interest.

CCS is not a question how much we are going to invest. CCS is there -- is becoming more and more real in term of projects, in term of acceptance. And in U.K., we are proceeding. In few days we are -- in a few days or weeks, we are going to inject cash in Ravenna, so it's there. We have a lot of interest from auto-based, so heavy industry, not just from Italy but also from France, from Greece. So there is a strong interest, strong movement.

Our investments 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 platform and compressor. So we have just to reverse the flow, maybe bring some injectors but it's not a big investment. So it's a big, big deal, big business and a lot of interest. And it doesn't need a lot of investments.

So the only heavy part that's relatively expensive in the capture and is not an investment is a operating cost that we have to perform every time we capture the CO2, depending on the level of the percentage of CO2. So it's not really -- and a very intensive capital deal projects but it's something that can be very useful for the transition, is going to reduce CO2 for the [indiscernible]. 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 start production now in few months or in 1, maximum 1 year.

You want to add something, Guido?

[Guido Brusco, executive]

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 institution to fund those kind of projects.

[Operator]

The next question is from Alessandro Pozzi with Mediobanca.

[Alessandro Pozzi, analyst]

I have 3. The first one is on GGP, the new guidance, sort of EUR 1 billion. Can you 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.

Then the second question is on chemicals. Of course, you -- set of results is great. The only probably sore point was, chemicals, that lost still EUR 200 million. Can you give us an update on the restructuring plans for the division? And 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.

[Claudio Descalzi, executive]

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

[Cristian Signoretto, executive]

Yes. So on the rate guidance, there are 3 major elements which 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 renegotiations 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.

The third element is linked to an accounting, let's say, readjustment 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, executive]

On Versalis, thanks, Alessandro, for the question. As you described, we are really grappling with a continuous negative momentum in term of market. Raw material, let's say, all the variable costs remain pretty high for the chemicals 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 in consideration all the element that we present in March during the Capital Market Day. That will enable, as we said in March, breakeven EBITDA in 2025, a breakeven EBIT in 2026 and a breakeven cash flow in 2027. Engagement with all the stakeholder 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, executive]

Okay. You said about the ruling of the constitutional court, clearly, the court are recognized that under special circumstances, there is the possibility to raise this levy on basically those want to sell on a particular structure, the VAT, the [indiscernible] VAT basis. So it is onetime tax measure originated by the special circumstances. 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 whose case was not dealt by the constitutional court resolution. On the other side, we are going to pay in the next, let's say, 6 months, the last installment of the tax, EUR 450 million. And also on the case, we will move our appeal for, let's say, raising our reason about these taxes. So we will continue to provide or to ask for compensation or reduction in certain cases.

[Operator]

The next question is from Alastair Syme with Citi.

[Alastair Syme, analyst]

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 is there 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, there's a large industry [indiscernible] 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 Brazil if a good opportunity came up?

[Claudio Descalzi, executive]

Thank you. For Enilive, the first question, Francesco can give some returns.

[Francesco Gattei, executive]

Yes. 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 1 or 2. Secondly, which is the kind of funds that have to be, let's say, or have to exit in the liquidity event of an IPO. And in that case, there would be, in case, let's say, larger room for them at the beginning than for Eni, that is 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. So in any case, there are different options.

[Claudio Descalzi, executive]

Before giving the floor to Guido, just to clarify something. Normally, we go through dual exploration model. That means that we go through exploration and then we sell and then it's not our habit to do the vice versa. We are not really interested to buy something that has been delisted from -- by somebody else because we have a huge amount of exploration block, huge amount of discoveries.

Azule made a enter recently in an exploration block, the [ PL 85 ]. So our strategy very well is different. We are not really seeking the risk exploration. We produce the risk exploration.

So Guido, I think I said everything. Clear. I doubt about it.

[Alastair Syme, analyst]

Can I just hop 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, executive]

In Plenitude and Enilive, we wanted to do an IPO at the proper time with the percent the market will absorb. And well, there will be different steps in order to decide what will be the percentage we are going to hold. So speaking about what is our ultimate percentage in these 2 entities is something that is extremely, extremely premature now.

[Operator]

The next question is from Lydia Rainforth with Barclays.

[Lydia Rainforth, analyst]

Actually, quite a lot of my questions have been answered but 2 if I could. Just coming back to the distribution policy. The additional potential for, I think, roughly about EUR 500 million buyback. What would actually stop you from doing that? So when you get to October and you look at the balance sheet, you're in a good place. You'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 here in North Sea, you've got Azule in Angola. You'll have Enilive, you'll have Plenitude. How do you keep that kind of Eni ethos kind of going across everything?

[Claudio Descalzi, executive]

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. It's 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 that everything is progressing as we think, as we hope and it's more -- 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 in any respect to this satellite?

[Francesco Gattei, executive]

But 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 we see that -- as I said, yet to be completed, as you know. I think that we proved there is an opportunity to create this model. This is a bit hybrid versus the traditional model of an oil and gas [indiscernible] company that wanted to have all the control of everything in [indiscernible]. You need to have 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, so far, I think that we have seen only benefits in what we have designed as the satellites and the capability to manage the complexity that this will imply.

[Claudio Descalzi, executive]

So I'd like to add that clearly, we are going through a different kind of model. I think it's very good model but that is a challenge for us, which is the challenge that we have to be useful. We have to attract our satellite. These new companies, they have to understand or they -- we have to show that we give -- add value to them. So that is a challenge where we give -- add value, we give our 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 ready because we are experiencing a very strong relation from a technical point of view, from a general point of view because they -- on this new technology we had in the past to reskill, upskill our people and our people is going in these companies. And there is a strong link, umbilical link because the reskill and the technical capability is something that we produce in the corporate, in the corporation. So I think that is completely 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 use 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, we have the 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 at our know-how and technologies. So I think that we have gas, we have oil but we have also a very strong resources, that is technology, know-how, R&D and skilled people.

[Operator]

The next question is from Peter Low with Redburn Atlantic.

[Peter Low, analyst]

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 start-ups 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 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?

[Claudio Descalzi, executive]

Well, the first question is for Guido and the second one for Stefano.

[Guido Brusco, executive]

Yes. The -- as we said, we are expecting to be at the upper bound of the guidance and this is being reinforced by a 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 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 1, 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, executive]

Yes. On Biorefining, actually, our choices are driven by 2 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. This 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 term of cash out, so CapEx and value creation, in order to maximize the IRR of each investment. Given these 2 main driver, we rephased in a minor way, capacity development, we're going to get to the 3 million within the 2027.

[Operator]

The next question is from Michele Della Vigna with Goldman Sachs.

[Michele Della Vigna, analyst]

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 imply there will be short of gas, even potentially in winter for the next couple of years. In the last 5 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.

[Guido Brusco, executive]

Yes, Michele, you are right. I mean it's open sources 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 this year.

In term 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, I mean, Egyptian government is working on that but I mean it's quite a long journey.

[Francesco Gattei, executive]

About the tax rate, yes, 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 the 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 also presented 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 at top end in the coming years. So will be probably something in the range of 45, as a percentage in the next 4-year plan.

[Operator]

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

[Matthew Smith, analyst]

I got 2, please. I mean lots of focus, quite rightly, on your net CapEx today and the progress there. I just wonder if I could come back to the growth 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 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 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 ask the question because I note your CFFO guidance still assumes a [indiscernible] price of [ 86 ] for the full year, so slightly ahead of the price on the screen at the moment.

[Claudio Descalzi, executive]

So for the first question on growth CapEx, what I said during the presentation and our expectation is to stay close, lower but close to the EUR 9 billion that was our original target. It's true that now if we consider what we spend, the spending in the first half, we are, little more -- 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's likely that we can spend a little bit less but that at the moment is our target.

For the buyback, Francesco.

[Francesco Gattei, executive]

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 million, 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 or to execute and to have visibility to the disposal plan. So the 1% is not a big effect that will change the view.

[Operator]

The next question is from Martijn Rats with Morgan Stanley.

[Martijn Rats, analyst]

I don't think I've ever said this but on this occasion, congratulations for the great quarter, unless really very impressive. A lot of questions have already been asked but I have 1 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 would 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, i.e., 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, executive]

You know that we have this guidance [ 30,35 ] and we revise every year. We announced at the Capital Market Day, taking into account of various elements, including clearly scenario, including deleveraging, 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 percentage. But the logic behind the distribution policy is clearly to improve even the percentage on the basis of the enhancement of the strength of the company. So that will be a natural consequence of this evolution.

[Operator]

The next question is from Matt Lofting with JPMorgan.

[Matthew Lofting, analyst]

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 just struck me that, 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 is differentiated GGP's performance through the first half of the year? And I ask partly because the financial results that you suggest when we look forward to '25 plus that the EUR 800 million baseline per year that you provided in March, perhaps increasingly looks quite conservative.

[Cristian Signoretto, executive]

So thanks for the question. Let's say, as we anticipated during the strategy meeting, the market has been reducing in terms of volatility. I mean just to give you a number, I mean, last year, in the first 6 months, the daily ETF movements were around EUR 2.2, EUR 2.3 per megawatt hour. This year, we are clearly down to EUR 0.9 per megawatt hour. So this is a trend which is actually happening. Having said that, this is still a 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 a substantial activity in Italy and that actually helped during the first 6 months. Second, the volatility -- combined volatility between oil, Brent and hub, also that actually gave us opportunities. And so those were the 2 elements, I'd say, in the first 6 months that were behind, let's say, the results.

[Jon Rigby, executive]

It's Jon Rigby here. I'm going to have to call it to a close. We 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 and we'll speak soon.

[Operator]

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