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                                       Expenses andRevenues   In this part, we are going to look throughto the financial review of ENI over the period of 3 years(2014, 2015 and 2016). In 2014 net profit attributable to Eni’sshareholders was 1,303 million.  Thetotal revenues and total operating expenses during 2014 were 99,297; 80,333accordingly.

Business performance was adversely impacted by lower oil priceswhich decreased revenues in the Exploration & Production segment. Themid-downstream business segments reported cumulatively an improved performanceof €1.2 billion reflecting gas contract renegotiations, cost efficiencies, aswell as optimization and restructuring initiatives, in spite of an unfavourabletrading environment. Furthermore results were affected by a €221 million losson the fair-valued interests in Galp and Snam which underlay two convertiblebonds.

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In addition to these business trends, 2014 net profit was impacted bynet charges of €2,416 million due to the alignment of crude oil and productinventories to current market prices, asset impairments driven by a lower priceenvironment in the near to medium term impacting the recoverable amounts of oil& gas properties and of rigs and construction vessels in Saipem, as well asthe write-off of deferred tax assets of Italian subsidiaries (€976 million) dueto the projections of lower future taxable profit (€500 million) and thewrite-off for €476 million of deferred tax assets accrued in connection with anItalian windfall tax of 6.5 percentage points which adds to the Italianstatutory tax rate of 27.5%. This windfall tax, the so-called Robin Tax, wasruled to be illegitimate by an Italian Court on February 11, 2015.

It was thefirst time that a sentence stated the illegitimacy of a tax rule prospectively,denying any reimbursement right. As a result of the abrogation, deferred taxassets of Italian subsidiaries were recalculated with the lower statutory taxrate of 27.5% instead of 33%, with the difference being written off.

The effectwas considered to be an adjusting event of 2014 results, on the basis of thebest review of the matter currently available, considering the recentpronouncement of the sentence. These effects were partly offset by therecognition of a tax gain of €824 million due to the settlement of a taxdispute with the Italian fiscal Authorities regarding how to determine a taxsurcharge of 4% due by the parent company Eni SpA (the so called Libyan tax)since 2009. In 2013 significant disposal gains were recognized due to thedivestment of a 20% stake in the Mozambique discovery (€2,994 million) and thefair-value evaluation of Eni’s interest in Artic Russia (€1,682 million),partly offset by extraordinary charges and inventory holding losses for €4billion (post-tax). These transactions affected the year-on-year comparison ofreported net profit.    In 2015 Eni reported a net loss pertainingto continuing operations of €8,778 million, considerably down compared to theprevious year. A prolonged slide in crude oil prices has negatively affectedthe Group’s performance, impacting results from operations and the value ofassets. Operating performance resulted in a loss of €2,781 million.

Thesenegatives were driven by lower E revenues reflecting reduced oil and gasrealizations negatively impacted by sharply lower Brent prices (down by 47%),the alignment of the carrying amounts of oil and product inventories to currentmarket prices and the recognition of material impairment losses mainly taken atthe Group oil & gas CGUs (€4,502 million). In performing the impairmentreview, Eni’s management assumed a reduced long-term price outlook for theBrent crude oil price down to $65 per barrel compared to the previous $90 perbarrel scenario adopted for valuating asset recoverability in the 2014financial statements. Furthermore, the operating loss was impacted by anestimate revision of €484 million taken at revenues accrued on the sale ofnatural gas and electricity to retail customers in Italy dating back to pastreporting periods and the establishment of a provision of €226 million forthose accruals. Eni’s management has implemented certain initiatives tomitigate the negative effect of low oil prices on profitability and cash flow.

These initiatives include the reduction of E operating expenses and thecurtailment of capital expenditure by carefully selecting exploration plays,rescheduling and re-phasing large development activities and renegotiatingsupply contracts for plants and other E infrastructures, as well asleveraging oilfield services rates on the deflationary pressure induced by thedecline in crude oil prices. This reduction in capital expenditure only had amodest impact on hydrocarbon production, which grew by 10% to 1.760 kboe/d. Theproduction plateau has been the highest since 2010, on yearly basis.

TheRefining & Marketing segment returned to underlying profitability supportedby plant optimizations and an ongoing margin recovery. The G segmentalmost achieved operating profit break-even, net of extraordinary chargesrelated to the unfavorable outcome of commercial arbitration, and in spite ofthe postponement of the recognition of gains on the renegotiations of certainlong term supply contracts. Finally, G expenses were reduced by €0.6billion.

Net loss for 2015 was significantly affected by an increased tax ratedriven by a deteriorating price scenario in the E segment, which resultedin the segment’s taxable profit earned in PSA contracts, which, although moreresilient in a low-price environment, nonetheless bear higher-than averagerates of tax and a higher incidence of non-deductible expenses on the pre-taxprofit that has been lowered by the scenario. In addition, the tax rate wasimpacted by lower recognition of deferred tax assets relating operating lossesdue to a reduced profitability outlook (€1,058 million). The Group tax rate wasalso impacted by the write-off of Italian deferred tax assets of €885 millionin the full year due to projections of lower future taxable profit at Italiansubsidiaries and the reduction of the statutory tax rate from 27.5% to 24%,which was considered as substantially enacted at the reporting date.     At the end of 2016, Eni reported a net lossfrom continuing operations of €1,464 millio, which far lower than the €8,778 millionloss recorded in 2015. This improvement mainly reflects a mild recovery thathas been staging in oil markets from the second half of the year. Better marketfundamentals were factored in the upward revision to management’s long-termassumption for the benchmark Brent price to $70 per barrel from the previous$65, which has been adopted in the financial projections of the 2017-2020industrial plan. This revision triggered asset revaluations of €1,005 millionpost-tax at oil & gas properties, which were absorbed by impairment lossesdue to a lowered outlook for gas prices in Europe and other drivers, as well asother non-recurring charges for an overall negative impact of €831 million.

Onthe contrary, the FY 2015 result was negatively affected by the recognition ofspecial charges of €8.5 billion. Those comprised impairment losses of upstreamasset (€3.9 billion) and the write off of deferred tax assets for €1.8 billiondue to a lowered outlook for oil prices.

Furthermore, the year-ago chargesincluded the impairment of the Chemical business (€1 billion) whose carryingamount was aligned to the expected fair value based on a sale transaction thenongoing designed to established an industrial joint venture, as well as otherextraordinary charges of €1.8 billion mainly in the G segment. Still,2016 underlying performance was negatively affected by a continued slump incommodity prices mainly in first half of the year which determined y-o-ydeclines in crude oil prices (down by 16.7%, from 52.5 $/b reported in 2015, to43.

7 $/b in 2016), in gas prices (down by 28.2%) and in refining margins (downby 49.4%).

These declines drove a 23% reduction in the Group consolidatedturnover. In addition the performance was affected by a four and half-monthshutdown of the Val d’Agri oil complex in Italy. Management implemented anumber of initiatives to withstand the negative scenario including tightinvestment selection, with capex down by 19% y-o-y at constant exchange rates,control of E&P operating expenses (down by 14%), optimizations of plantsetup at refineries and chemical plants, savings on energy consumptions andlogistic costs and G&A cuts. All these measures improved EBIT by around€1.

7 billion. Finally, income taxes declined by €1,186 million due to the abovementioned extraordinary drivers. The tax rate has been affected by the highrelative incidence on taxable profit recorded in the first three quarters of2016 of results under PSA schemes, which are characterized by higher-than-averagerates of taxes.     

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