Eni Spa Q3 FY2020 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Eni's 2020 Nine-Months Results Conference Call and Q&A session, hosted by Mr. Francesco Gattei, Eni’s CFO and top management. For the duration of the call, you will be in listen-only mode. I am now handing you over to your host to begin today’s conference call. Thank you.

Good afternoon. Welcome to Eni results for the first nine months of 2020. It is a pleasure for me, my first appointment with the investment community as CFO of Eni, to introduce our new business segmentation. As you know, we set out our ambitious and detailed decarbonization strategy, along with a new operational and financial framework at our announcement in February and July. Today, we are reporting for the first time along the lines of the two new business units. In natural resources, we included upstream oil and gas, CCUS and forestry, the global gas and LNG, and the environmental remediation activities of Eni rewind. In energy evolution, we grouped our downstream renewables, CCGT, retail gas, and power. We are making good progress against the new strategy. It plays to Eni's legacy plans which give us immediate scale. The new energy side of the business and environmental reporting record position us to attract new ESG investment, and finally, balance sheet strength further announced by strong investor appetite for the perpetual bond. Coming now to the results. In the first nine months, we produced 1.74 million barrels per day. The reduction versus last year was mainly driven by the impacts of COVID-19, including upper class cuts, lower gas demand, mainly in Egypt, and the effects of contracts from previous force majeure in Libya, partially compensated by positive portfolio price effects in PSA and the ramp-ups. Exploration results continue to compare Eni's leadership with the main discovery in five countries that we'll detail later. Since January, we have discovered 300 million barrels of oil despite the significant reduction of activity that we have implemented since the second quarter. Global gas and LNG delivered a resilient performance both in terms of EBIT adjusted and in terms of free cash flow generation. And finally, we are accelerating the CCS with a diversified portfolio of projects in Italy and in Europe. Energy evolution is continuing to grow and deliver strong results, even in the current volatile environment, with an overall EBIT of around €320 million, 25% of Eni's overall results. In retail, retail GMP proved to be robust with an EBIT of more than €200 million, driven by commercial actions on the customer base and the contribution from the sale of additional services. R&M was good, thanks to the residual marketing and the strong biorefineries contribution. The power segment posted positive results and benefited from asset optimization, while in renewal, we are reaching the target of 300 megawatts, and we are positioned to grow further. Turning to financials, Eni remained free cash flow positive with cash flow before working capital of €5.1 billion, pro forma leverage was reduced to 29%, including the €3 billion of the hybrid bonds. Before entering into the industrial performance, I would like to focus on our ESG performance. Over the past six years, we built a business model that now integrates the 17 sustainable development goals in all our decisions, and we designed a clear path for decarbonization. This strategy is well-rated by the ESG agencies such as MSCI, CDP, Sustainalytics, Bloomberg ESG, and the Transition Pathways Initiative, which has evaluated Eni as a leader in different ratings. This recognition comes also from specialized institutes such as Carbon Tracker, which ranked Eni first among peers for the competitiveness of its unsanctioned portfolio, emission reduction target, and for a mid and long-term price scenario among the most conservative in the sector. Moreover, we are confirming our FTSE4Good Developed status and this year in the ESG iTraxx index. Finally, for the second year in a row, Eni is among the top 10 performing companies for sustainability reporting according to the World Business Council for Sustainable Development. The strong ESG performance not only matches our license to operate but can open up a new source of sustainability-linked financing which we will look at in the future. Let's now move to natural resources. Both upstream and global gas and LNG showed resilient performance in this exceptional 2020. Upstream production guidance is confirmed, and we can narrow the range to around 1.72 million to 1.74 million barrels of oil equivalent per day. Upstream EBIT in the first nine months was €0.75 billion. The reduction versus last year is entirely explained by the scenario that includes COVID, accounting for €5.1 billion, while €0.8 billion is due to volume and mix effects. Global gas and LNG EBIT was €0.4 billion, up by €0.2 billion year-on-year. The result was driven by the optimization of our portfolio, which counterbalanced the lower PSV-TTF spread and the weakness in LNG demand related to COVID. In terms of full year 2020, we expect global gas and LNG to deliver an adjusted EBIT in the range of €0.2 billion, and the free cash flow of €0.3 billion, due to lower optimization opportunities in the fourth quarter, as they were mainly realized in the first nine months. CCS is a key pillar of our strategy of decarbonization. It aims to reduce emissions in order to abate industrial segments, decarbonize final products, and reinforce the oil and gas in power generation after backup power plants for renewable energy. We have already identified the two main geographic hubs in the south and north of Europe. The first hub is in Italy, in the Ravenna offshore. The Adriatic Blue is the first CCS project in the Mediterranean, one of the biggest in the world, with a storage capacity between 300 million and 500 million tonnes. We are exploiting a unique opportunity thanks to the combination of depleted offshore gas fields, operational infrastructure already in place, and proximity to our onshore power plants and other industrial sites. This coupled with the scale of this project will allow us to keep costs very competitive, and we have a faster time to market. We plan to have a demo start already in '22, followed by a potential industrial start-up in 2026. The second hub is in the UK with two main projects, one in Liverpool Bay, where we plan to repurpose our depleted reservoirs and infrastructures to store third party CO2. This month we have been granted a six-year license to conduct feasibility studies, including GNG field. We plan to take the FID by 2023, with a start-up planned by 2025. The other project is Net Zero Teesside in the northeast of England. The initiative was launched in 2017 by the OGCI, of which Eni is a member. In addition, we are continuing to invest in forestry REDD+ projects. The main ongoing activities are in Africa, Latin America, and the Far East. For 2020, we expect 1.5 million tonnes of CO2 equivalent sequestration, mainly thanks to our conservation activities in Zambia. Exploration continues to deliver strong results, even in a difficult year, we have successfully discovered oil and gas in various countries. In particular in Egypt, we recently announced two new gas discoveries in the Great Nooros Area, in the conventional water of the Nile Delta, about 10 kilometers north of Nooros field. The recent discovery in the area indicates that the gas in place for the overall Great Nooros Area is now in excess of 4 Tcf. In Mexico, the Saasken well led to an oil discovery which may contain between 200 million and 300 million barrels of oil in place. It was the sixth consecutive successful well drilled by Eni in the Sureste basin. In Vietnam, the Ken Bau drilled in Block 114 has confirmed a significant hydrocarbon accumulation. Preliminary estimates of the Ken Bau accumulation provide a range between 7 to 9 Tcf of raw gas in place, with 400 million or 500 million barrels of associated condensate. In Sharjah, UAE, the Mahani-1 was drilled and tested with flow rates up to 50 million standard cubic feet per day of lean gas and associated condensate. Just one year after the signature of the concession agreement, the size of the discovery will be further assessed with the addition of Liza, as the better time to market of this discovery is around one year, with startup expected in the coming months. In Angola, thanks to the Agogo three wells in Block 15/06, we increased the size of discovery by more than 50%. Now it stands at 1 billion barrels of oil in place, with further upside to be tested in the northern sector of the global structure. Thanks to this track record, we confirm our 2020 guidance to discover 300 million barrels of oil at around $2 per barrel this year. Let's now turn to energy evolution. This new business group had a positive result showing a little bit more than €320 million, representing 25% of the group EBIT results. In Eni gas e luce power and renewal segment, EBIT in the first nine months was €333 million, almost a 60% increase year-on-year. In more detail, Eni gas e luce delivered an outstanding result of over €200 million, an increase of 37% in the period, driven by the growth of the customer base and a high contribution from non-commodity activities. Customers grew by 120,000 compared to the end of 2019. Our revenue levels doubled year-on-year, thanks to higher dispatching contribution, optimization, and strong installed capacity growth, plus 60% were year-end 2019. In R&M and chemicals, EBIT in the first nine months was substantially at breakeven, thanks to resilience of marketing activities and bio businesses, while the duration of refining results were strongly impacted by the weak margins and lower demands. We expect energy evolution to contribute over €0.3 billion in terms of EBIT in 2020, confirming the retail and service performance, whilst reducing R&M from €350 million to €150 million, as a result of the weaker scenario and assuming a farm of $2.7 per barrel in the fourth quarter. Let's see one of our energy transitional areas. Eni has been the first mover to convert a traditional refinery into a bio-refinery, using the Ecofining proprietary technology, and the results are now becoming material. Porto Marghera in Venice, the first plant conversion in the world started up in 2014, and has a capacity of 360,000 tonnes per year. From the end of 2023, our further upgrade is set to boost capacity to 560,000 tonnes, with increased feedstock diversification from food production waste and other advanced byproducts. The Gela bio-refinery in Sicily became operational in August '19, with a capacity of up to 750,000 tonnes, and is able to process a wide variety of feedstock with pre-treatment starting at the beginning of 2021. Our bio-refining system will become palm oil-free in 2023, with 80% of second and third generation systems by the end of 2023, versus 20% today. The bio-refining activity has proven to be profitable with a contribution of €60 million in the first nine months of 2020 and is expected to have an IRR of 15%. In addition to the current bio-refining activities, we are also advancing another third-generation biofuel technology. After launching in 2018 a waste to fuel demonstration plant in Gela, in July we may rewind to finalize the feed for our first industrial scale plant at Porto Marghera, near our Green refinery in Venice. The plant will jump to up to 150 tonnes per year of organic waste, equivalent to the quantity generated by 1.5 million people, and the bio oil that can be used directly as low sulfur fuel for shipping or refineries to create high-performance biofuels. Cash generation before working capital was projected at €5.1 billion in the period. Excluding the scenario in COVID, our cash flow would have improved year-on-year by €1.7 billion. €9 million cash flow more than covered our CapEx of €3.8 billion in the period and generated €1.3 billion of free cash flow. This is proof of the capability of our company to react fast to minimize its financial needs in this difficult period. For 2020, we confirm our cash flow from operations before working capital guidance in the range of €6.5 billion, up from $40 Brent. Turning now to the successful placement of our first hybrid bond for a total of €3 billion. I would like to highlight that the placement brings us a number of strategic benefits. It added a new layer of investment to support our transition plan, significantly strengthens our balance sheet with a pro forma leverage at the end of September now down to 29%, supports our strong investment-grade rating, and enhances our liquidity position, which is currently around €20 billion, almost five times our short-term debt. We have achieved great results with our first hybrid bond issuance, with demand seven times higher than our original offer. This demonstrates the capital market confidence in Eni's financial robustness and our new energy transition strategy. Finally, the optimization of our portfolio represents a never-presented level to generate growth capital and strengthen the balance sheet. As part of return for ratio, we are designing a disposal of non-core upstream assets, which no longer fit within our portfolio, pursuing the optimization of our non-upstream portfolio, including infrastructure and logistic assets, and considering replicating the Var Energi model, where we merged our assets with another company to create a dedicated independent entity able to grow and compete independently. Thanks to this activity, we are working on our green gross disposal for around €1 billion by the end of the year. To sum up our 2020 guidance. Notwithstanding the difficult operating scenario and depressed demand, in natural resources, we confirm our production guidance at 1.72 million to 1.74 million barrels per day and for exploration to discover more than 300 million boe. In addition, we expect global gas and LNG to deliver an adjusted EBIT in the range of €0.2 billion. Our mid-downstream in the first nine months improved year-on-year despite the COVID pandemic. And for 2020, we see energy evolution EBIT up over €0.3 billion. At company level, we confirm an operating cash flow before working capital at $40, of €6.5 billion versus net CapEx confirmed at €5.2 billion. Furthermore, we expect to complete the gross disposal plan of around €1 billion in the coming quarters and to keep our leverage pre-IFRS below 30% by year-end. In summary, we have been resilient in the face of the great challenge of 2020. While we expect the recovery in the energy markets in 2021, we are prepared for continuous certainty. We have a high level of efficiency in our operations, flexibility when it comes to CapEx, and a strong balance sheet with high levels of liquidity and a comfortable level of leverage. And now together with Eni's top management, we are ready to answer your questions.

Ladies and gentlemen, we will now begin the question-and-answer session. The first question is from Michele Della Vigna of Goldman Sachs. Please go ahead.

Thank you very much for the presentation. And congratulations on the very resilient results. I had two questions for you. The first one is about buybacks. At the moment, the share price of Eni is very depressed, as is to be fair the rest of the sector. You have strong leverage, especially after the hybrid bonds. I was wondering, why not take advantage of the circumstances to start perhaps earlier than expected a buyback program that would be highly accretive at this level of share prices? And then secondly, going back to your slide on the carbon capture project. You clearly have a wealth of opportunities here. I was wondering, do you think that the existing regulation in carbon pricing is supportive of good returns on those projects? And what kind of dollar per tonne do you expect to be required for good returns as these projects go to full scale? Thank you.

Okay. Thank you, Michele. I'll leave the second question about CCS to Alessandro Puliti. On the first one about buyback, you know that we prepare the company for these five phases. These phases are, as I say, uncertainties. We adopted our distribution policy to a variable element related to the scenario, and we consider the buyback above a certain level of pricing. So, what we are working on is working within this framework. We are working substantially to a larger optionality within the company to ensure that we are able to pay the fixed component of our dividend at a lower price as much as possible. So, to work for optimizing the company, the company performance, the company perimeter, and the company efficiency. We work also in additional optimization related to the portfolio. We announced today the advanced stage of the disposal plan. And we reinforced the balance sheet as we mentioned before. So we are working on creating a company that is stronger and stronger to manage the complexity and the flexibility. All these parts are a part of management judgment in terms of dividend distribution policy. For the time being, I continue to refer to the original plan and to the original remuneration model that we presented to the investment community last summer. And now we leave the reply to Alessandro Puliti for the CCS.

Good afternoon. Clearly, the economics in this area are all about comparing the cost of the emission and the cost of the carbon capture and storage facilities. Regarding the current situation, we can say that with our projects that are leveraging on existing reservoirs, depleted reservoirs, and utilizing at least partially existing facilities, the cost of storage can be considered comparable with the current value of the carbon certificate. To this, we need to add the cost of the capture. And clearly, this is subject to an additional cost that can be covered with the future increase of the cost of the carbon certificates, or a cost that can be incentivized by the different governments that are interested in putting in place carbon capture and storage policies.

Thank you.

The next question is from Oswald Clint of Bernstein. Please go ahead.

Thank you, everyone. First question, Francesco, just coming back to bio-refineries and strong performance in the quarter. And I think you talked about it in the release of like satisfying strong demand. Could you quantify the sort of demand growth you're seeing for those biofuels just not, at least numerically? And is that being sold into transportation, or into fuels market has been blended with transportation fuels? Is that correct? And then even in your retail marketing, I note your sales are back up to 2019 levels. Is there anything going on there in retail marketing in terms of incentives or it's just the lack of lockdown in the summer and then people driving again? And then my second question is just on Mozambique. It seems like the consortium is going back again for some lower costs on number and ultimately delaying that FID. How much more do you think you can get off the CapEx of this project? And when can we expect an FID most likely '22 at this stage, is that right?

Okay. Thank you, Oswald Clint. I forward your message or your question, the first one to Ricci and the second one to Puliti.

Hello, good afternoon. About the increase of the biofuel demand, we see that the strong demand is driven by the ambitious decarbonization mandate over Europe, due to the rule of ride tool. That foresees an increase of the renewable in transportation. 100% of the bio products are used in transportation. We expect further growth in demand in the next few years because of the recent announcement by the European Commission confirmed by the parliament to increase the GHG setting targets to 2030. That in part will be attributed to the transport renewable components. Just to give an example, we see that in the last year, the HVO, they generated vegetable oil demand in Germany only increased 10 times.

Alessandro for the Mozambique.

Okay. Regarding Mozambique, in this new environment the operators are optimizing the development plan and maximizing synergies with area one, and exploiting every opportunity, including the potential cost reduction related to core and lower cost market situation. Therefore, the FID that originally was expected in 2020 is postponed. An updated project and the new FID date will be defined based on the results of this cost optimization phase. And probably in the next strategy, we can be more precise when this exercise will be concluded.

Understood. Thank you.

The next question comes from Jon Rigby of UBS. Please go ahead, sir.

Yes, hi, good afternoon. A couple of questions, please. The first is on what the oil, gas and power segment. I realized it's being broken down now. But I think you're retaining the sort of the legacy guidance, but it seems to me in the first three quarters you hit that guidance. So implicitly, you're saying no money to be made in that business in aggregates in the fourth quarter? Just to confirm that's correct. And just then to sort of follow on to say, well, if LNG markets as they look to be doing are improving and historically, seasonally 4Q is typically better. Could you just walk me through what changes into the fourth quarter that would generate the worst quarter for EBIT from those businesses for 2020, which will look quite unusual? And the second question, I wonder whether you could sort of pick apart or give a bit more guidance on the €1 billion of disposals you're now looking at. I think it seems in the presentation that you linked that to some sort of a green gross agenda, partnership, etc., if I heard correctly. Is that right?

I would say the gas and power results, and energy everything is clear. I just would like to understand better your last question. I missed what you were referring to?

Yes. I mean, if you're able to just go back in a little more detail on the €1 billion that you've identified for disposal, just to clarify in a little bit more detail. You did talk about it, but I just wonder whether you're able to shine a little bit more light on what's happening there. And where that's likely to come from? Thanks.

I'll answer to the disposal question, then about the gas and power I confirm that we kept the same guidance. And you are correct in saying that we have achieved the revenue. This nine months the results that we are planning for the year. Then I will leave to Cristian to answer to the last quarter performance we’re expecting, and also, which is potentially the upside eventually that could be linked to the LNG evolution. Now coming back to the disposal, clearly, we were referring to a €1 billion disposal plan. It’s actually a negotiation activity or a tender activity that is in a very advanced stage. You have already probably seen in the news, something related to Australia, but also there are other assets which are under discussion, and therefore we have decided to disclose this plan. Clearly, disposal optimization and focusing on our portfolio will be material part of future plan of Eni. We have to move our positioning from certain areas, non-core areas, to growing opportunities to the transition businesses. And therefore, this is the kind of activity we are targeting, various upstream assets, and that is part of the future plan. About the LNG and the gas for the fourth quarter, now I leave the floor to Cristian.

Thank you for your question. So, on the fourth quarter, I think the most relevant issue that we have to face is the fact that in the first nine months, we have been able to capture most of the value out of our optionality. So we front-loaded well, let's say options capturing and so in the last quarter of this year, we have actually less opportunity to capture into the market. And if you add on, on top of that, the fact that the spread gets compressed, which is an important element in our capturing opportunities, is fairly depressed and is expected to be depressed in the fourth quarter. This actually adds to my explanation. On the upside side, it's true that the LNG prices have been increasing in the last days. And yes, we are capturing part of that upside, but also you have to understand that most of our sales are already locked into long-term agreements. So we have some spare opportunities, but there are not yet many. And if you sum up all these elements, we think that the guidance of around €0.2 billion should be confirmed.

Okay. Thank you.

The next question is from Irene Himona of SG. Please go ahead, ma'am.

Thank you. Good afternoon. I had two questions, please. So firstly, thinking about working capital movements in the fourth quarter, I wonder if you can give us some guidance on that. And secondly, in the downstream, your new guidance includes ADNOC pro forma. I wonder if you can let us know what is included in that guidance for ADNOC so, we have EBIT as reported on a like-on-like basis. And also in the downstream can you tell us what EBIT your marketing business generated in Q3 please? Thank you.

Okay. About the working capital movement, you remember that last quarter in the second-half, we had announced a change and expected to see observation of working capital in the range of 600-700. Actually, we are now assuming a lower performance. The lower performance is mainly related to the downstream business. So downstream mainly is referring to refining and chemicals, clearly are suffering from lower pricing and therefore, lower value what we are planning and lower demand. And therefore, your capability to absorb working capital will be lower there. You made a question about ADNOC. The performance of ADNOC in the quarters is minus 70. This is including both the refining and freighting. About the contribution instead of marketing in the retail marketing on the ninth month, you can consider something just a bit above €400 million in terms of EBIT.

Your questions have been answered?

Yes, thank you very much.

The next question is from Massimo Bonisoli of Equita. Please go ahead, sir.

Good afternoon. Welcome back, Francesco. I have two questions. One, regarding Libya, which you can give us an update on the country. What are the operating conditions of your facilities there? And how much of Libyan production is included in your volume guidance for 2020? The second question is related to the CCS projects in the UK. If you could elaborate on the CapEx related to those projects, and if they were included in your CapEx plan presented in summer?

Thank you. Thank you, Massimo. I'll leave the answer to both to Alessandro Puliti.

Okay. Situation in Libya, I will firstly give you the numbers. So Libyan production accounts for around 170,000 barrels of oil per day equivalent in our 2020 guidance. And regarding the operational situation, we are operating, I would say, in a normal manner all our gas fields. The situation on the oil fields that were subjected to the blockade is certainly improving as on the 22nd of September. ADNOC announced the lifting of the force majeure. The production of fields was started on the 19th of October and the field restarted on October 26th. So now all the fields in which we have an interest in Libya are in production. Regarding the CCS in the UK, we've been recently awarded the license. And for the time being, we are carrying basically capital only for studies. As long as the project will be defined, then we will define the capital amount necessary for the transformation of our Liverpool Bay assets and depleted reservoir into CO2 storage reservoirs.

Thank you.

The next question is from Martijn Rats of Morgan Stanley. Please go ahead.

Yes, I only have one left. And I recognize this may be a little bit tricky, to be honest. Last quarter, we spoke of course, it was about the dividends. And I do remember at the time, the indication was very clear that the floor dividend was sort of contingent on sort of $45 Brent. And I wouldn't expect to see a major revision already sort of so soon after the previous major revision, but we're not at $45. And frankly, we may not be there for another couple of months or couple of quarters to come. So, I was wondering how you would suggest we sort of think about that comment that the floor dividend is dependent on $45? And over what time would actual oil prices need to sort of divert from that before you would start to think about the dividend again?

Martijn, I think this is a very good question. I think that, what is important for us, we aligned in the center of a crisis that I would say once rounds. And we call it the first rounds, now we're entering the second rounds, etc. But what is important for us is to exit each round faster and stronger. So what we did in the past months was substantially to equilibrate the company. So, the cash needs were rebalanced to reinforce the balance sheet with every bond. So we kept the leverage under control. We are opening now additional flexibility. We have portfolio opportunities. We have additional CapEx flexibility. We have cost opportunities, reducing and slimming the company segments and several activities also take into account of the new opportunity working that is related to my work. So, there are value segments that we are working on that. So, from that what we can see is that the $45, currently $45 can be lower, is in our plan in our efforts to lower this level even further. We have an additional capability or flexibility to reduce it eventually, if necessary, CapEx postponing FID. We have a larger flexibility in terms of liquidity. We have €20 billion of liquidity. So I think that in the current situation, even if the crisis is longer, we have a lot of tools in our arch that could be used to define the statistics and to bring the dividends sustainable, even in lower price.

Okay, wonderful. I appreciate that. Thanks, Francesco.

The next question is from Alastair Syme of Citi. Please go ahead.

Hi, Francesca. Thanks for taking the question. It is not really a third quarter question, but it's just more strategy. Eni has been pretty bold in the last couple of years on the energy transition. And one of the things just happened in recent months as the markets got very excited by hydrogen. And it's not something you guys have really spent a huge amount of time on other than perhaps what you're doing in the refining system. So, I guess the question is, do you think the market is getting ahead of itself? How do you think about this business opportunity? And how you can compete?

I think that I will pass this answer to Massimo, who is clearly in charge of all the activity related to energy, energy transition and as I say, the right information about the hydrogen.

Hydrogen for sure would be quite an important new product in our future, mainly thanks to the CCS opportunity that we have that has been already commented by Alessandro. Because today, throughout the CCS, definitely, we could generate the hydrogen decarbonized hydrogen at a very, very competitive price versus the green one. So, we see such application potentially, in Italy. We see the application in the UK and elsewhere in the world, looking forward in which we could replicate the same scheme that we are applying in Italy and UK. So maybe production of gas to hydrogen, which is yes, for sale of totally decarbonized hydrogen. This is really important also in terms of timing because we see certainly and we are working on the green hydrogen, thanks to our significant expansion in the renewable. But definitely we see the blue one coming first, opening up the marketing, and so the green hydrogen when it comes to definitely could benefit from the work that has been done on the regulation on the demand creation in the different markets.

Massimo, can I ask when you speak to regulators and politicians in Italy in the UK and in Europe, do they understand that sort of blue hydrogen has to come first and green hydrogen longer down the road?

Discussions are taking place because as you noticed, this is a brand new item on the table. So, we're passing some information to them based on our own experience as the others are doing. But I'm really confident that we can get there, because like-on-like it would be quite a similar process that took place when the renewables took over. So the necessity some way to create a new market to create a new regulation, in this case could be a bit more complicated because electricity could be transported through the existing grid, while on hydrogen, maybe you will need specific transportation assets. Unless, as it could be the first stage, the first companies taking benefit from the blue hydrogen would be close to the production itself of this hydrogen. So, I'm thinking about entities that definitely will be the first beneficial counterparty of this new product.

Great. Thanks very much.

The next question is from Thomas Adolff of Credit Suisse. Please go ahead, sir.

Good afternoon. I have three questions if that's okay. Just firstly, on the refining business. When you presented your strategy at the start of the year, you've mentioned that your refineries in Europe, your plans are to convert them into green sites over time. Now, obviously, the refining cycle has turned and refining margins are in this depressed territory and probably going to stay there for some time to come. Are there any plans for you to perhaps accelerate that process of converting refineries into biosites, maybe do one maybe earlier? And just kind of link to the refining store. Obviously, you made a very big investment a year and a half ago in the UAE, buying a stake in that market, and generated another loss this quarter, very big one, minus €77 million. I'm not sure if your views have changed on refining. More recently, we've seen some of your competitors lower the refining margin estimates and taking a big impairment charge. Is this still an asset where you said you paid a fair value? And then my final question is just on the disposal plan, the €1 billion that has emerged out of the blue is just to kind of compare what you said in the past. What do you first mean by gross disposal? What is this meaning of gross? And then secondly, is there anything else in the hopper that you're looking to monetize maybe in 2021, so we can expect the additional disposals? Thank you.

Thank you, Thomas. I will leave the question about the refining to Massimo. I will answer to the disposal. In terms of gross, we think mainly before taxes, so substantially that is the value of the asset that you are selling, and that each one could have a different clearly fiscal component. On 2021 disposal and future plan clearly we are preparing, we are working on the future plans. Therefore, we are not yet ready to announce it to disclose also because it's part of a wider strategic program. And sure, there will be many, many opportunities for disposal. You know very well that M&A portfolio sometimes also will apply that approach to various assets, various opportunities, some are achieving the results within the timeframe. So that is the plan for the disposal. About the refining business, the conversion to bio-refining and the UAE investment, I will pass the word to Massimo.

Yes. Talking to the bio-refinery, the answer would be yes. So, we announced a 5 million tonne of target capacity by 2050 without specifying any interim result. But considering the very good results that we are achieving plus the significant market that we see is going to open up including the biojet opportunity that could come in the very next year. Certainly, the idea of the transformation could be accelerated on this regard, I would say next strategy presentation, we definitely will give you an updated vision on this. Talking about ADNOC, I would say the negative result this year has been driven by two main results. First of all, you may remember that ADNOC suffered an accident at the FCC plant in 2019 that keeps on recording negative effect in 2020. So, the first cause of the negative result is this one. And second definitely is the deep significant downturn that is touching the worldwide refining system. Having said that we remain convinced that the other refinery is a very stronger facility with the capability to resist in a normal and ongoing condition better than other assets. So, definitely we're making the difference between European capacity and the conversion to the bio-refinery versus such international we say Far East investment that is benefiting from a more positive situation. So, we are convinced, and we see the possibility, the high probability to recover very soon and to resist to this negative way that to be in the condition to turn to positive result, as soon as the demand returns to a more normal situation.

Massimo, obviously 3Q was a quarter where the FCC was operating normally, and it was just industry refining margins being weak in the quarter. In that context, did ADNOC actually lose more money in absolute terms than your European refining business, which obviously has a lot more capacity than your equity stake in ADNOC?

On this, we can provide more detail, but the third quarter has been the worst. I wouldn't say this is the reason for changing our stance on this. I have confirmed what I just mentioned regarding potential possibilities moving forward.

Okay. Thank you.

The next question is from Peter Low of Redburn. Please go ahead, sir.

Hi, thanks for taking my questions. Firstly, just on the 2020 CapEx guidance, you seem to be annualizing well below the €5.2 billion guidance, especially looking at the run rate over the last two quarters. If there is any reason why CapEx should step up meaningfully in 4Q? Or is that a good prospect to come in below that level? And then the second was just another follow-up on the bio-refineries. You've talked about their strong performance, but utilization is still quite low, which is 53% in the quarter. Is there any reason why they're not running at high utilization levels? Thanks.

Regarding CapEx, I don't think it's really a straightforward situation. It's part of the activity related to postponements of final investment decisions. We need to keep in mind that the second and third quarters were quite limited in terms of activity due to COVID. We had to halt drilling and exploration. In the fourth quarter, you could say there was a partial recovery of activity at the year's end. Therefore, it can't be assessed purely on a quarterly basis. Sorry, what's your second question?

Yes. It was just you told that the strong financial performance in the bio-refineries, but their utilization level has been quite low, which is 53% in the quarter. I was wondering why you weren't running them at a higher utilization level, if the demand was there. Thanks.

This I'll leave to Pino and mainly related to the ramp up and Venice maintenance, but I will give it to Gianluca Pino to answer.

Thanks, Francesco. In fact, in the third quarter, we had the planned maintenance in both bio-refineries. And this is the reason why the service factor has being so low. In the fourth quarter, we expect to increase the service factor up to 80%. We have to consider that Gela refinery is still in ramp up. And the production done in the nine months, the overall production done in the nine months is slightly more than 0.5 million tonnes per year. That is a 60% more than last year. And we expect a continuous increase in the ramp-up up to the maximum capacity.

Thank you.

The next question is from Biraj Borkhataria of Royal Bank of Canada. Please go ahead.

Thanks for taking my question. I just had a follow-up on the bio-refining here. I recall the cost of the Gela conversion was about €300 million for I think 750,000 tonnes. Now as you look forward to the next wave of conversions and the expansion we're talking about, can you say anything about how you're expecting costs to come down relative to the initial conversions? Or are those sensible figures to use for the expenses going forward? Thank you.

Sorry, you have to reply again.

The cost to convert the refinery is quite low, as seen in our projects in Venice and Gela, which range from $400 to $500 per ton of capacity investment. This is due to our efforts in transforming and reusing existing assets. Future investments will vary based on the type of project we undertake, and we anticipate utilizing either brownfield or greenfield solutions depending on the local conditions for the bio-refinery.

Okay. Thank you.

The next question is from Bertrand Hodee of Kepler Cheuvreux. Please go ahead.

Yes. Hello, everyone. Thank you for taking my question. I have one left. Can you give us a feel of how your unique OpEx in upstream trending so far in 2020? If I go to 2019 level it was $16.1 per barrel. And wondering if you can disclose what level you are over nine months or in Q3? And could you expect some further decrease or on the contrary because of portfolio mix or COVID events, it is a bit different? Thank you.

Yes. Thank you, Bertrand. In terms of OpEx, you have to consider that the portfolio mix with acquisition with a contribution of Norway has slightly improved in terms of increasing in terms of OpEx. The current level of OpEx is in the range of $6.5, $6.6 per barrel. You have to consider that also the reduction of production as we see a negative impact because is adding a fixed component that is worsening the unitary element the unitary value. The plan was to increase to $6.8 due to the COVID so to the lower production, but we were able to contain it in the $6.5 to $6.6 range.

Thank you.

The next question is from Lucas Herrmann of Exane. Please go ahead.

Thanks very much. And a question on Zohr and Egypt, if you don't mind. Can you just remind us where production is? It's all now, how its profiled to-date? And what your expectations are as we go into next year, assuming the export markets for LNG continue to stay, they continue to appear more robust than that's been the case nine months ago? Thanks very much.

Thank you, Lucas. I'll leave now the answer to Alessandro Puliti.

Okay, so Zohr will average in 2020 the level of 2 BCF per day in terms of production, while in the third quarter the average is 2.2 BCF per day increasing. We see an increasing demand from the export side in Egypt, clearly this is linked to the winter time. So we expect production in the near-term for Zohr to further increase.

And where is capacity at the moment now? We are north of 3 or...?

The production capacity of full production, Zohr can produce 3.2 BCF per day.

Okay. And do you have any comments on when you think you might be running at capacity?

Running a capacity, we are required a full recovery of the demand in Egypt, and also an improvement of the export capacity. So, we can see it in a couple of years at the last.

Okay. Thank you very much. I think that we are finished. I don't know if this was the last question. Otherwise, thank you very much and let's see what's happening in the near future. All the best to all of you.

Thank you. That was the final question. Thank you for participating in the Eni conference call.