Annual Report 2018

We are an energy company. We are working to build a future where everyone can access energy resources efficiently and sustainably.

Our work is based on passion and innovation, on our unique strengths and skills, on the quality of our people and in recognising that diversity across all aspects of our operations and organisation is something to be cherished.

We believe in the value of long term partnerships with the countries and communities where we operate.

Eni engages in oil and natural gas exploration, fields development and production, mainly in Italy, Algeria, Angola, Congo, the United Arab Emirates, Egypt, Ghana, Libya, Mozambique, Nigeria, Norway, Oman, Kazakhstan, the UK, and the United States, for overall 43 Countries.

Eni sells gas, electricity, LNG and oil products in the European and extra-European markets, also leveraging on trading activities. Products availability is ensured by oil and gas production in the upstream business, long-term gas supply contracts, CCGT power plants, Eni’s refinery system as well as by Versalis’ chemical plants. The supply of commodities is optimized through trading activity. Integrated business units enable the company to capture synergies in operations and reach cost efficiencies.

Eni worldwide presence

We operate in
67 countries

America

10

Europe

38

Africa

22

Asia and Oceania

34

• 6 Exploration & Production
• 1 Gas & Power
• 3 Refining & Marketing and Chemicals

• 7 Exploration & Production
• 13 Gas & Power
• 18 Refining & Marketing and Chemicals

• 14 Exploration & Production
• 3 Gas & Power
• 5 Refining & Marketing and Chemicals

• 16 Exploration & Production
• 11 Gas & Power
• 7 Refining & Marketing and Chemicals

Activities

Eni’s business model is focused on creating value for its stakeholders and shareholders. Eni recognizes that the main challenge in the energy sector is providing efficient and sustainable access of local communities to energy resources, while combating climate change. This challenge may trigger new paradigms of development affecting patterns of consumption and supply, as well as on industrial processes.
In this framework, Eni has adopted a systemic approach to pursue efficiency, resilience and growth, which organically integrates sustainability to make it business, incorporates emerging trends of decarbonisation and inclusive development including them in its industrial plan and in the operating model. Eni, therefore, adopts a business model, fuelled by the application of own innovative technologies and the digitalization process, leveraging on the following levers:

1. operational excellence
2. carbon neutrality in the long term
3. promotion of local development

1 Operational excellence 2 Carbon neutrality in the long term 3 Promotion of local development

1 Operational excellence

Efficiency and integration are the strategic drivers leading Eni’s business towards operational excellence.
This allows the achievement of low cash neutrality, a low time-to-market and a high value resource portfolio, resilient also in low carbon scenario.
The excellence of the operating model is also characterized by a steady commitment to minimize risks and create opportunities all along the value chain through the valorization of human resources, the safeguard of health and safety, the environmental protection, respect and promotion of human rights and focus on transparency and anti-corruption.

2 Carbon neutrality in the long term

Secondly, Eni’s business model envisages a path to decarbonisation with the ambition to lead the Company to become carbon neutral in the long term, aiming at maximize efficiency and reduce direct emissions through the compensation of residual emissions, promoting an energy mix with a low carbon impact.
In the long term, Eni supports a change of energy paradigm and a conversion of the current consumption pattern towards a more sustainable and rational one, leveraging on the principles of circular economy, pursuing a path to conversion by exploiting the group’s expertise and positioning in the downstream business.

3 Promotion of local development

Promotion of local development in Eni’s Countries of activities is the third lever of the business model.
First of all, we supply our gas production to the local market, expanding access to electricity and by promoting a large portfolio of initiatives addressed to local communities: from local economies diversification, to projects for health, education, access to water and hygiene.
This “Dual Flag” approach leverages on the collaboration with institutions, cooperation agencies and local stakeholders in order to identify actions to satisfy the needs of communities in accordance with the national development plans and the 2030 UN Agenda. Eni is also committed to create job opportunities and transfer its know-how and expertise to the local partners.

The responsible and sustainable approach represents for Eni the logic for creating value in the medium and long term for the company and all stakeholders, combining financial solidity with social and environmental sustainability. This approach is fundamental to operate in the complex current context and respond to the crucial challenge of the energy sector: the transition to a low carbon future and access to energy resources for a growing world population. The 17 Sustainable Development Goals (SDGs) of Agenda 2030, promoted by the United Nations, are a reference framework for Eni, to guide activities and seize new business opportunities, also in partnership with various national and international organizations to share knowledge and resources and contribute to the achievement of development goals.

Operational excellence model

People

Commitment

Eni focuses on the growth, enhancement and training of its people, recognizing diversity as a resource

Performance

• 31,701 employees at year end
• 23.3% women
• Over 1 million of training hours (+5% vs. 2017)

SDGs

Safety

Commitment

Eni considers safety in the workplace an essential value to be shared between employees, contractors and local communities

Performance

• TRIR 0.35
• TRIR down by 51% vs. 2014

SDGs

Environmental impact reduction

Commitment

Eni promotes the efficient use of natural resources and the safeguard of protected areas that are relevant to biodiversity, identifying potential impacts and mitigation actions

Performance

• 87% of freshwater reused
• -2% of freshwater withdrawals vs. 2017
• Recovered waste equal to 40% of disposed waste from production activities
• -20% operational oil spills vs. 2017
• 60% of reinjected production water

SDGs

Human Rights

Commitment

Eni is committed to respect human rights in its operations and to promote their respect towards partners and stakeholders

Performance

• Published Eni’s Statement on respect for human rights
• 91% of employees trained on human rights
• 90% of security contracts containing clauses on human rights
• 100% of new suppliers screened using social criteria

SDGs

Transparency and anti-corruption

Commitment

Eni carries out its business activities with loyalty, fairness, transparency, honesty and integrity and in compliance with the laws

Performance

• Membership of EITI^(a) since 2015

(a) Extractive Industries Transparency Initiative: Global initiative to promote a responsible and transparent use of financial resources generated in the mining sector.

• 8 Countries where Eni supports EITI’s local Multi Stakeholder Groups
• 32 audit actions on risk of corruption activities

SDGs

Path to decarbonization

Combating climate change

Commitment

Eni has defined a clear decarbonization strategy developing short, medium and long term actions to promote the energy transition

Performance

• -20% of GHG emission intensity index (upstream) vs. 2014
• -16% of volumes of hydrocarbons sent to flaring vs. 2014
• -66% upstream methane fugitive emissions vs. 2014
• Net zero carbon footprint on direct emissions of upstream activities (in equity) at 2030

SDGs

Promotion of local development: cooperation model

Local development through public-private partnership

Commitment

To support local development, Eni promotes access to energy, economic diversification, education and training, access to water and hygiene, health also through public-private partnerships

Performance

• €94.8 million on community investment in 2018
• Partnerships signed with UNDP and FAO

SDGs

Technological Innovation

Commitment

Eni invests in new solutions that can increase the efficiency and sustainability of activities, reducing costs and environmental impact

Performance

• €197 million invested for research and technological development (+7% vs. 2017)
• 43 first patent filing applications of which 13 filed on renewable sources

SDGs

2018: year of outstanding financial and industrial results achieved thanks to the fast implementation of our strategy.

2018 results were driven by our successful exploration activity supported by the “dual exploration” strategy allowing Eni to early monetize discoveries, to achieve efficiency through the optimization of hydrocarbon reserves time-to-market, the breakeven decrease in downstream businesses and the financial discipline on spending.

The optimization of existing portfolio, the geographical diversification strategy and the improved balance of assets portfolio along the value chain through a robust growth in the Middle East, together with our commitment in promoting local development, in environmental protection and in fostering Eni’s expertise and technologies enabled Eni to seize synergies and growth opportunities.

Public-private partnerships started-up in 2018 will enable us to share resources, know-how and expertise with the United Nations Development Programme (UNDP) for sustainable development and to aim at achieving SDGs, in particular the universal access to energy by 2030, the actions to combat climate changes and the protection, restoration and sustainable use of the earth’s ecosystem and with the Food and Agricultural Organization (FAO) for clean and safe water access in Nigeria.

The outstanding financial results of the year were achieved against a backdrop of highly volatile Brent prices, due to signs of weakening global growth, oversupply, uncertainty tied to the commercial dispute between the USA and China, the Brexit, as well as geopolitical issues.

2018 sources and uses (€ bln)

Organic cash flow vs. net borrowings (€ bln)

Thanks to the deep transformation process started in 2014, Eni today, after years of oil market downturn, owns a sustainable financial structure and is resilient to the volatility of scenario as never before. Through the strict implementation of our strategic guidelines Eni was able to combine growth, profitability and soundness of financial position, achieving record hydrocarbon production at 1.85 million boe/d in 2018, reducing net borrowings to €8.3 billion, with a leverage of 0.16, the lowest level in the last 12 years, among the best in the industry, thus distributing €16.2 billion of dividend in last five years, on the backdrop of a challenging trading environment.

Production vs. capex

Financial soundness

Dividends paid

Eni’s 2018 Consolidated Disclosure of Non-Financial Information (NFI) has been prepared by structuring the report on the three levers of Eni’s integrated business model (Path to Decarbonisation, Operational Excellence Model and Promotion of Local Development) whose objective is to create long-term value for stakeholders, combining financial stability with social and environmental sustainability. The NFI provides an integrated view on the topics set out in Italian Legislative Decree 254/2016, also by providing references to other sections of the Annual Report or to the Corporate Governance Report, if the information is already contained therein or to provide further explanation.

References to the main United Nations Sustainable Development Goals (SDGs) has been included in the various chapters. The UN’s 2030 Agenda for Sustainable Development, presented in September 2015, identifies 17 Sustainable Development Goals, which represent common goals for the current complex social challenges. These goals are a valuable source of guidance for the international community and for Eni in conducting its activities in the Countries in which it operates.

Path to decarbonization

Taking into account the scientific evidence on climate change of the Intergovernmental Panel on Climate Change (IPCC), Eni intends to play a leading role in the energy transition process, supporting the objectives of the Paris Agreement. Accordingly to its strategy, Eni has defined a clear path to decarbonization, developed through short, medium and long term initiatives.

Operational excellence model

The operational excellence, characterizing Eni's business model derives from its capacity to operate by enhancing own people, giving priority to safety and environmental protection, respecting and promoting Human Rights and always working with integrity and transparency. In this way, Eni is able to create long-term value for all stakeholders thanks to a high value resource portfolio, resilient also to a low-carbon scenario.

Promotion of local development: cooperation model

Eni's business activities create value promoting socio-economic growth of the Countries in which it operates. This value consists in the impacts on socio-economic, occupational and intellectual dimensions, that business generates directly, indirectly on the country's economic system, along the supply chain.

Responding to the needs of the developing countries is a Eni's distinctive feature. This is achieved through concrete actions developed in partnership with local and international institutions, respecting and considering the perspective of all the stakeholders. The access to energy resources in an efficient and sustainable way is a pillar of the cooperation model in all countries of presence.