Eni Offers Reassurance on Gas Supplies

Eni rewarded investors on Friday by more than doubling its share repurchase program. It also sought to reassure shareholders and the public that it could meet its gas supply commitments, even if Russia halts all exports to Europe.

Like many of its peers, the Italian major saw its net income soar on the back of high prices for crude, oil products and natural gas, even as its production held largely flat.

Growing public scrutiny of the high profits that energy companies are reporting has led to concerns among investors that Italy or other countries could raise corporate taxes to fund consumer bailouts.

Buyback Bonanza

Eni increased it share buyback program by €1.3 billion to an annual total of €2.4 billion. The return of capital to investors was made possible by an 86% jump in operating cashflow in the second quarter versus the same period of last year.

Like some of its peers, Eni uses a formula to determine how much free cashflow to allocate to shareholders.

Analysts were keen to know if the company might distribute even more cash to investors, but executives said the company's board had only authorized spending of up to €2.5 billion on shares this year.

Investors responded positively to Eni's earnings report, sending its shares 5.6% higher in Milan on Friday.

Enough Gas Lined Up

In recent years, Italy has been Europe's second biggest importer of Russian gas after Germany, but Eni's supplies from Russia were cut to 27 million cubic meters per day on Jul. 27 from 36 Mcm/d.

The cut coincided with Russian gas giant Gazprom's reduction of flows through Germany’s Nord Stream 1 pipeline.

But Eni executives said that even if Russia were to cut off all of its exports to Europe, the company could still meet all of its supply contracts as a result of recent efforts to diversify supplies and store additional gas ahead of the winter.

Investors have also been worried that Europe's plan to cut gas demand by 15% through March of next year could undercut Eni's gas sales.

But Eni estimates that Italy would need to cut its consumption by only 7% from current levels in order to take consumption 15% below the country's five-year average.

CEO Claudio Descalzi pointed out that the equity LNG volumes that Eni is bringing into Italy could be redirected to other high-value markets if they were no longer needed at home.

Windfall Profits Tax

Italy was one of the first countries to impose a windfall profits tax on energy companies, implementing a scheme in late 2021 and expanding it as gas and power prices continued to rise after Russia's invasion of Ukraine.

Eni executives estimated that the company would pay around €800 million to the Italian government this year as a result of the scheme.

The company has already paid its first installment of €500 million. In addition, Eni's UK North Sea operations will be hit by that country's own windfall profits tax.

Analysts are worried that Italy could increase the tax from its current level to raise additional revenues.

Eni executives argued that the company had already made substantial investments in Italy's energy security — notably in natural gas supplies and storage — and that the government should take this into account when thinking about additional taxes.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact