Earnings Call Transcript - E Q2 2025

Operator, Operator

Good afternoon, everyone, and welcome to Eni's 2025 First Half Results Conference Call led by Mr. Claudio Descalzi, Chief Executive Officer. I will now pass it over to your host to start today's conference. Thank you.

Claudio Descalzi, CEO

Thank you. Good afternoon, and welcome to our Q2 2025 result presentation. I'm pleased to say that the strong and consistent pace of strategic progress we have set in transforming Eni has continued through the first half of 2025. Our speed of action is enabled by the clarity of our strategic intent that can be summarized as in upstream, delivering efficient competitive growth and improving the return of our portfolio, most notably through exploration success, active portfolio management and organic production start-ups and ramp-ups. Integrating our equity gas production into the LNG chain to maximize value. In particular, Eni is the leader in floating LNG which provides an opportunity to unlock a large amount of resources in associated gas or from deepwater far-from-shore discoveries. In parallel, building new complementary and competitively advantaged energy business related to end product decarbonization, such as Enilive, Plenitude and CCS, transforming the downstream and chemicals, converting these businesses to new growth opportunities such as our plan for Versalis, enhancing profitability and margin capture in areas such as trading to take benefit of more complex energy markets and anticipating a new trend such as data centers and nuclear fusion. Critically, our business initiatives are supported and improved by a unique and innovative financial strategy that discloses value, supports investment and growth, and contributes to our enhanced balance sheet strength with leverage at historic lows. Executing this strategy, we expect to grow CFFO by around a total of 40% by 2030 and materially improve return on capital employed. This, in turn, drives shareholders' returns, which are our first commitment, combining a competitive euro-denominated dividend that has been growing at over 5% per year and is our top priority with our share buyback program. If we now take a look at the important development of the year-to-date context, we continue to grow and enhance our upstream. The key engine of our organic growth remains our industry-leading exploration. In the first half, we discovered around 600 million barrels of oil equivalent of new resources, including from Namibia, Ivory Coast, and Norway. And in the second half, we have significant further activity including follow drilling in Namibia, Angola, a material prospect offshore Indonesia. Our Norwegian satellite bar started up two major projects Johan Castberg in March and Balder X in June, which will contribute towards driving Vår's production to more than 400,000 barrels per day in Q4 this year. These are the first two of five major projects in the Eni portfolio due for first production in 2025 with Agogo NGC in Angola and a second floating LNG in Congo to come on stream in the second half. We are now advancing our fourth and largest upstream satellite, focused on Asian LNG in combination with Petronas in Indonesia and Malaysia. In June, we also opened a new equity gas to LNG opportunity by signing an agreement with YPF for the Argentina LNG project, combining significant resources in the Vaca Muerta and 12 million-tonne per year floating LNG facility. Alongside our existing development portfolio focused on time to market and our continuing exploration success, we are forming compelling visibility over the profile of our long-term upstream activities. Alongside growing upstream, our strategy in building transition businesses supported by aligned fresh investment is unique and delivering material value while strengthening and diversifying Eni's overall returns. With the conversion of Sannazzaro into a biorefinery, we have now four additional biorefinery projects in the pipeline, of which two are located in the Asian market. Plenitude's binding offer to Acea Energia made in June grew the customer base by more than 10%, parallel to the expansion of renewable capacity. Indeed, that capacity growth will also be marked in 2025, growing by over 30% year-on-year to over 5.5 gigawatts net to Plenitude or more than 7 gigawatts in gross terms. The growth outlook for Enilive and Plenitude with EBITDA close to tripling between 2024 and 2030 is being recognized by important investors. In addition to the top-up by EIP taking their stake to 10%, we announced the EUR 2 billion investment by Ares for a 20% stake, valuing Plenitude at around EUR 12 billion in enterprise value. This transaction is expected to close around the end of the year. In April, KKR topped up its stake to 30% in Enilive by investing EUR 601 million following the EUR 2.96 billion we collected in March. Our satellite model is also adaptable to supporting a more nascent business. In May, we agreed on an exclusivity agreement with GIP related to the sale of a 49.99% stake in our CCUS activities, providing aligned capital ahead of the build-out of a wider platform on the CCUS project and is expected to close in the second half of 2025. The agreement followed the financial close reached in April with the U.K. government on our Liverpool Bay project. Finally, our goal of improving financial performance and profitability is also focused on corporate cost efficiency. But in this respect, our transformation plan for Versalis is a critical lever. In this, we are accelerating our actions. In March, we closed the Brindisi steam cracker, and we closed Priolo in July, well ahead of our original plan. These closures will allow us to address a significant portion of the losses through the remainder of 2025 and 2026. Together with the investment into the new platform, they will contribute to delivering a turnaround in EBIT of almost EUR 1 billion, bringing Versalis back to free cash flow breakeven at the end of our 4-year plan. Q2 results broadly reflect Eni's sensitivity to the scenario. We are delivering in line with our guidance. In the upstream, production was 1.67 million barrels per day in line with our guided range. EBIT for the quarter was around EUR 1.7 billion. And pro forma EBIT of EUR 2.4 billion was both consistent with the prevailing scenario. GGP result benefits from the positive effect of a contract renegotiation and full year pro forma EBIT is now expected to be around EUR 1 billion, capturing the original guidance upside. Enilive saw an improvement in EBITDA versus Q1, almost unchanged year-over-year. This positive momentum should be supported by typically stronger marketing contributions in Q3 and the recovery in biospread that we already saw toward the end of Q2. Plenitude was supported by retail business and continued progress in renewable production. Both transition businesses remain on track to meet the full year guided result. Versalis results show an improvement quarter-on-quarter, but remain significantly loss-making. Ahead of the expected positive impact of the transformation plan now underway, the first effect of which should be observed in the second half. Our refining operations improved on Q1 on a better margin, but were impacted by downtime at key assets. Cash flows before working capital in the quarter were EUR 2.8 billion or EUR 6.2 billion for the half year, maintaining our efficient conversion of earnings into cash. Gross CapEx year-to-date stands at EUR 3.9 billion, and we are on track to deliver the lowered guidance of under EUR 8.5 billion for the full year, while the net CapEx is expected below EUR 6 billion, thanks mainly to the Ares investment into Plenitude and upstream valorizations. On the cash initiatives of EUR 2 billion announced with our Q1 result, EUR 1 billion has been delivered. Moreover, we have identified a further EUR 1 billion to be captured by the end of the year, raising the total benefit to EUR 3 billion. In the first half of the year, we repurchased EUR 0.66 billion, of which EUR 0.3 billion related to our 2025 program that we confirm to complete in Q1 2026. Net debt fell again quarter-on-quarter to EUR 10.2 billion, EUR 2 billion lower than year-end 2024. And leverage stood at 19% despite the impact from foreign exchange on equity balances. With outstanding valorization received, pro forma leverage was 10%, equivalent to 9% net debt to capital, the lowest level in our history. Before moving to Q&A, I want to update on an important achievement in this quarter, our upstream combination with Petronas in Indonesia and Malaysia. Since announcing the MOU in February, significant work has continued, culminating in the framework agreement signed in June setting out key principles, including the asset level valuation of the respective contributions yielding a 50-50 split. Work is continuing on completing financial due diligence in defining the business plan, and receiving the relevant approvals ahead of the completion targeted around the end of 2025. Our upstream satellite model is proving to be a powerful means of creating critical mass and new strategic options and generating material additional cash flow. Vår, Azule, and Ithaca clearly demonstrate this. Our combination with Petronas replicates the model and will be our largest to date, creating a leading regional player with an exceptional growth outlook in a highly dynamic area of the world where gas demand is forecast to increase substantially, and with significant capacity to independently fund its investment program. Together with Petronas assets, the combination will combine 19 blocks across Indonesia and Malaysia, spanning production, development and exploration activities. 5 FIDs are targeted for 2026 and 4 more in the following years. And we expect gross production of over 300,000 barrels per day at closing with a prospect of over 500,000 barrels per day in 4-5 years. Additional exploration success offers the prospect of even higher production levels, standing well into the 2030s as emphasized by the over 10 billion barrels of estimated unrisked resources in place. Indeed, at least 10 highly probable success, high-impact wells are planned to be drilled over the next 3 years, aiming to prove up this material upside. We have also agreed on a mechanism for the joint venture to compensate the legacy acreage owner for new discoveries made, representing a further source of cash upside. In addition, we continue to expect to valorize a retained minority equity stake in Kutei blocks in a separate portfolio operation likely in 2026. The Petronas combination is a compelling example of how Eni uses its distinctive features, exploration skills and technologies, valuable relationships, and dual exploration and satellite model to deliver portfolio high-grading, growth, cash, and ultimately, value. In a way, I would say it’s unique in the industry and is highly material to Eni. Looking ahead, the second half of the year will build on our strategic execution, speeding up growth and value delivery in 2026. Production will benefit from the start-ups and ramp-ups to hit around 1.7 million barrels per day of full-year guidance. The third quarter will reflect this impellent growth, but also the usual seasonal maintenance activity, with production seen at between 1.7 million and 1.72 million barrels per day. New renewable power generation capacity will come on stream to reach the target of over 5.5 gigawatts by the end of the year. We now expect CFFO in 2025 to be EUR 11.5 billion, EUR 0.5 billion higher than our Q1 outlook and EUR 0.5 billion higher on an underlying basis than our original guidance. In addition, we realize the remaining EUR 2 billion of the overall EUR 3 billion of cash initiatives I highlighted earlier. Distribution will continue as promised, with a steady pace of buyback to recognize our investors' attractive and resilient returns in a volatile market. We will continue to keep the company pro forma leverage between 15% and 20% in 2025 within the planned range. On the basis of these results, our operational momentum and with the closing of the current live deals, we can expect a positive second half of the year, and an even more promising 2026 that we've built on a larger, diversified and more valuable set of assets. And now with the team, we are ready to answer your questions. Thank you.

Jon Rigby, Analyst

Okay. Thank you, Claudio. Are we going to move to questions? Good afternoon, everybody, I should say. And the first question is from Josh Stone at UBS. So Josh, if you'd like to ask your questions. And if I can again ask if you can keep it to 2 questions just so that everybody can participate.

Joshua Eliot Dweck Stone, Analyst

First question I'll ask is on GGP. You signed a fairly large contract with Venture Global this quarter starting 2030. It's the significant first U.S. LNG contract you've signed. I'm sure when you partially buy, there's an arbitration ongoing with some of your competitors and peers. So I was curious if you could elaborate on the terms of that contract? And what gives you the confidence that these volumes will appear as promised when the project starts up? And then second question, actually, a bit more of a modeling question around the satellites. Your stake in Enilive has now gone to 70% and Plenitude will go to the same level at the end of the year. It's quite material to model the minority interest. But in terms of the minority dividends, are you able to give any guidance there? I presume your private equity backers want to get paid at some point? And is there any dividend policy within these? And how should we account for that in our cash flow balances? Would be helpful.

Claudio Descalzi, CEO

Thank you for the question. The first question is for Guido for GDP and the second, Francesco is going to answer.

Guido Brusco, CFO

Well, of course, we cannot comment on the third-party contract and proceedings. We know that there is an arbitration ongoing. We know which provision has been posted by Venture Global. And of course, we rely very much on their project ability to deliver modular plant as they did already in the past. As far as the contract in itself, we've actively scouted the market, and we found this project very competitive. We found it very much in line with our need to complement our portfolio of contracted volumes. As you know, we have a target to hit 20 million tonnes per annum, and also to cover geographically the whole globe and this contract is very complementary to our current portfolio, which covers East and West Africa, Middle East, and Far East.

Francesco Gattei, CFO

Yes, about the distribution policy that are related to Enilive and Plenitude, we do not disclose this value that are related to clearly reference to net results and a proportion of that. And I think we can provide the further details in the future. But for the time being, we are not disclosing that volume that is not particularly material in this space.

Jon Rigby, Analyst

Thanks, Josh. We're going now to Biraj at RBC.

Biraj Borkhataria, Analyst

The first question is about the asset sale to Vitol. There seems to be roughly a 2-year gap between the effective date and the expected close based on your comments. Regarding the headline price, since this is a project with significant development capital expenditures, I was curious if the adjustment would be in Eni's favor, meaning the cash received would be higher than the headline value, or if it would be lower. Could you provide any sense of the magnitude of that adjustment? Also, Claudio, as you spoke on the call, I wanted to ask about succession planning. You've been CEO for over a decade, and the company's strategy has evolved significantly during that time. Are you considering remaining with Eni beyond 2026, possibly as Executive Chairman or for another term as CEO?

Francesco Gattei, CFO

Yes, it is right. You are correct in describing the deal, the consideration, let's say, the effective date of the deal. And clearly, the closing will take into account of the amount that is cashed in terms of production because both assets are producing assets. And clearly, in terms of investment because as you are correct in saying, there is a ramp-up of investment for reaching the plateau of the different phases. Clearly, it is still an uncertain amount because it will be determined at the time of closing, but the consideration has to be adjusted for that amount.

Claudio Descalzi, CEO

For the succession plan, I want to emphasize that Eni's strength lies not in just the CEO or the COO, but in the team as a whole. We have a highly skilled and capable team that underpins our strength. Together, we have developed a resilient strategy that has effectively navigated through turbulent times. We are currently focused on the succession plan. Our management team possesses a strong sense of commitment, expertise, and a deep understanding of the company and its strategy. Therefore, I assure you there is no cause for concern. Eni is robust because of its culture and strong management team.

Jon Rigby, Analyst

Thanks, Biraj. We'll move now to Peter Low at Rothschild.

Peter James Low, Analyst

Yes. The first was just on the tax rate. It's come in a bit lower than kind of your previous guidance for a couple of quarters now. Can you perhaps just elaborate on what's driving that and kind of where we should expect it to be going forward? And then the second was on the refining market. We've seen a step-up in margins in the third quarter. There seems to be mixed views out there as to whether it's transitory or maybe a bit more structural. I'd be interested in your perspective on what's driving that? And then whether there's any reason you won't fully capture the improvement in Q3?

Claudio Descalzi, CEO

So Francesco is going to answer for the two questions.

Francesco Gattei, CFO

Regarding the tax rate, we expect it to be between 50% and 55%. This is based on our assumptions about various business scenarios and their performance, which are influencing the tax rate. A significant factor is the transition of loss-making businesses into profitable assets, which should have a positive impact on the tax rate. Additionally, we will be able to re-evaluate certain tax credits that were previously deemed non-recoverable due to ongoing losses. The transformation of refineries and the shift from crackers to new opportunities like battery storage will also contribute to lowering the tax rate. As a result, we can now anticipate a tax rate closer to 50%, at the lower end of our original expectations. I will now hand it over to Pino to discuss margins.

Giuseppe Ricci, CFO

No, about our vision on the refining margin, what we are seeing is a sudden increase in the margin starting from the end of June, early in July. And what we expect is that for some months, the situation could remain because the storage of products is very low. The crack spread of gas oil is very, very high because of the stress in the ban of Russian crude and Russian gas oil. This is very positive for all the crudes during the driving season.

Jon Rigby, Analyst

Thanks, Peter. And we're going to move now to Irene Himona at Bernstein.

Irene Himona, Analyst

My first question on Plenitude. As you clearly are moving towards the '28 capacity target of 10 gigawatts and then 15 by 2030. Can you provide a timeline for that satellite turning cash flow neutral? So will it be by 2030 or later? And then my second question on this very material new upstream satellite in Indonesia. To better appreciate the materiality near term, can you perhaps give us a sense of the uplift to your 2026 production CFFO, et cetera?

Stefano Goberti, CFO

Thank you for the question, Irene. This is Stefano Goberti. Plenitude is currently a growth company. We are on track to achieve our 10 gigawatts target, with financing increasing by 60% to 70% from cash generated by the company and the rest through debt. We aim to keep a very strong balance sheet, maintaining a net debt to EBITDA ratio below 3 in our statutory numbers. Growth will continue until our retail domestic clients are served by our production from renewable plants, which we expect to happen between 2035 and 2040. Additionally, cash flow will turn positive before that date.

Claudio Descalzi, CEO

Yes. For Indonesia, this is clearly a significant and transformative project for us, not only in its location but also in its scale and potential. While we cannot disclose specific details at this moment, we are optimistic about providing positive developments and potential upside in 2026. We are unable to reveal exact figures related to returns, financial outcomes, or dividends right now, but we will clarify these details in February when we present our four-year plan. Undoubtedly, this is one of the best agreements we've made recently and will be highly beneficial for Eni overall.

Jon Rigby, Analyst

Thanks, Irene. We are going to move to Henry Tarr at Berenberg.

Henry Michael Tarr, Analyst

The first one is just on the YPF Argentina project. Could you give more color just around what might need to happen for it to reach FID? And are you happy to sort of push ahead with potentially large-scale LNG projects currently, just given the sort of large ramp-up of capacity that we're seeing in LNG towards the end of the decade? And then the second question is just on the buyback. Clearly, the balance sheet continues to be in good shape. You have had strong divestment proceeds coming in. What could cause you to reassess the buyback as you look towards the rest of the year?

Claudio Descalzi, CEO

Okay. Guido will answer on the YPF, and then I'll take care of the buyback.

Guido Brusco, CFO

Yes. Of course, quite a number of steps need to be made and fine-tuned with YPF, which includes the final project configuration and the final field development plans, commercial agreements, and then offtake agreements and the project financing. So this would require some time. Our expectation is to finalize all of this by the very end of the year or beginning of next year.

Claudio Descalzi, CEO

Good. Regarding the buyback, we previously indicated in our Q1 that the buyback serves as a baseline. The trend has been very positive, and we are making progress with the execution of our strategy, which is encouraging. All our key performance indicators are strong. In the coming months, we will see if we can maintain this momentum. We are confident in our ability to sustain this trend, so we may consider enhancing the buyback. We will provide clearer updates in the next months, but this possibility exists.

Jon Rigby, Analyst

Thanks, Henry. I would just actually just to complement one thing that Stefano said earlier on is we do disclose the net debt position of Plenitude. So you can see the capacity that the company has, just to add to Stefano's comments. We're going to move now to Lydia Rainforth at Barclays.

Lydia Rose Emma Rainforth, Analyst

Two questions, if I could. The first, just coming back to the EUR 3 billion cash management. Obviously, that looked quite a long way from where we were at 1Q. Can you just talk through that a little bit more? And have you been surprised at how easy it's been to actually kind of manage that cash and to get those savings? And does it make you think about the rest of the business where else you can make savings? And then secondly, I just wanted to touch on the pockets of financing that you're tapping. When I take a step back and look at the transactions that you've done, it's the combination of national oil companies, it's trading companies, it's private equity. What advantages over traditional sources of financing and partners do you think that gives you both short term and long term?

Claudio Descalzi, CEO

Before asking Francesco to discuss the EUR 3 billion, I want to emphasize that this was not a straightforward task. It’s not something we started just a week ago; it’s the result of an ongoing effort and strategy that is in motion. This is clearly part of the efficiencies we are discovering through the new model. With the business combination and the integration of the satellites, we are working to eliminate excess costs and overlaps within our structure. As mentioned in the presentation in February, this initiative does not only provide us with dividends or the ability to invest or create value but also leads to a new organizational framework for the company. Improvements can be made gradually. We did not necessarily need to declare an additional EUR 1 billion today, but after our efforts, we secured this extra EUR 1 billion. It required significant work, as it involved organizational changes. With the new structure and other financial strategies implemented by Francesco, we now have more flexibility in our operations. This is the primary reason for this update. We are not in a defensive position due to a need for more cash; instead, we are aligning our organization with the new models. Francesco, do you have anything else to add?

Francesco Gattei, CFO

Yes. What is clear is possible in all organization to think and work differently than in the past. There are a lot of tools, financial tools or capability to redesign what was a typical cycle, for example, for payment, a typical cycle for storage, etc., that could be shorter to improve in terms of financial needs. So it's a sort of just-in-time logic that you had, for example, in the automotive industry 20 years ago. And this gives you a lot of more availability and efficiency in terms of use of cash because at the end of the day, the cash for an oil and gas company is expensive. And outside of this company, there are other suppliers of capital and cash that are much cheaper and, therefore, optimizing the overall cost.

Claudio Descalzi, CEO

In response to the question about new partners, we are indeed expanding our collaborations with traders, national oil companies, and funds. This aligns with the new organizational model we are implementing, particularly the satellite model, which creates more opportunities. These partners are beneficial, especially in local contexts like Indonesia and Malaysia, where collaboration with state companies allows us to move more quickly. They possess deep knowledge of the assets and the local market, which helps prioritize their production and projects, aligning with our needs as well. Their focus is entirely on maximizing the value of their resources. Additionally, funds play a crucial role in developing our transition satellites. They thoroughly assess our models, challenging us in ways that typical oil and gas companies might not. They provide funding while we manage operations, establishing a different dynamic. The model we've developed over the last three years has been successful, strengthening not only our balance sheet but also our organization by opening new, more focused, and quicker opportunities. It is vital for us to act swiftly to avoid wasting money and time. When resources are available, we seek partners who are equally committed to delivering quick returns on those resources.

Jon Rigby, Analyst

Thanks, Lydia. We're going to move to Spain now. I'll hand over to Alejandro Vigil at Santander.

Alejandro Vigil, Analyst

Yes. The first question is about the opportunity with Acea Energia and the potential investment there. The second question refers to discussions about satellites, specifically whether Namibia could be another potential satellite given the ongoing process that Gulf is currently trying to execute there.

Claudio Descalzi, CEO

Stefano, Acea, please.

Stefano Goberti, CFO

Yes, about Acea, we submitted a binding offer and the Board of Directors of Acea accepted the binding offer. You know that we offer a value for the company, an enterprise value of EUR 460 million, plus a potential another EUR 100 million to be verified in terms of KPI and target KPI on the quality of the customer base in June 2027, plus the cash position normalized for another EUR 130 million. The operation for us is pretty in line and in our strategy because we will acquire, counting the customer base at the end of 2024, 1.4 million clients, 70% of which are power clients, so perfectly in line with our strategy to increase the power client customer base. So I would say, a very good operation, and we hope to complete it as soon as possible. The process is taking the necessary authorization mainly from antitrust. So we envisage by the first half of 2026 to close the operation.

Guido Brusco, CFO

Well, Namibia is a clear example of how effective our business model with the satellite. So when we created the satellite of Azule, the objective was, of course, to develop the resources in the country, but of course, also to expand regionally, and Namibia is a clear example of that strategy materializing into execution.

Jon Rigby, Analyst

No interest in the Gulf process?

Guido Brusco, CFO

No, we are not interested. We have found our resources. We have a new exploration well coming. So we are focused on our block and our resources at the moment.

Jon Rigby, Analyst

Thank you, Alejandro. Okay. So we're going to move from Alejandro to Alessandro Pozzi, Mediobanca.

Alessandro Pozzi, Analyst

So I have two questions. The first one is going back to your opening remarks around Versalis. You talked about the acceleration in the restructuring plan. Can you maybe talk about what would be the next milestones in the second half into next year for the restructuring of Versalis? And how do you expect chemicals margins to evolve? And the second question, always on the outlook, but this time on biofuels. One of your competitors reported really good results the other day. Maybe can you talk about the dynamics in biofuel markets as we go into second half and 2026 again?

Claudio Descalzi, CEO

Okay. Thank you for the question. Adriano, and then Stefano for biofuels.

Adriano Alfani, CFO

Thanks, Alessandro, for the question. So as you might have seen from the public announcement, we decided to speed up a little bit the action plan that we announced about the closing of the cracker in Brindisi and the closing of the cracker in Priolo. When you close big machines, the positive impact starts to materialize after 12 months. But that said, in the second half of 2025, we are going to see some positive effects in the range of EUR 90 million, almost EUR 100 million. And this is coming from more or less EUR 60 million, EUR 65 million from the shutdown of the two big machines, another EUR 20 million, EUR 25 million from the development of the new platforms. Clearly, when I say the project, you start to see the big effect by the second half of 2026. So the effect of this efficiency and this shutdown will be in the range of EUR 250 million on a yearly basis. So you start to see from the second half of 2026. And of course, you start to see more in 2026 coming from the development of the new platform plus a more efficient plan. Going to your question about how we see the scenario. Honestly, we see lack of meaningful economic recovery in the chemical sector in Europe. So we see some slight improvement in the scenario, but as I said, there are very slight improvements. So all this number that we provide to you is based on pretty much flat scenario. Yes.

Stefano Ballista, CFO

Alessandro, thank you for the question. Definitely, market dynamics are improving significantly. And the reasons we can simplify are twofold. From one side, we are seeing additional demand. This is in line with our expectation. We said demand would have come, for example, from Germany or from South close to the second half of the year, and this is what's going on. Second, there are a set of very good news, both in the EU and in the U.S. about future demand target. An example, Germany published a proposal on the Renewable Energy Directive III deployment. And this proposal is moving the 14% of GHG reduction to 25% by 2030, and they're even setting a target for 2040, a very relevant one. And second, they are proposing to get rid of the double counting feedstock. This means a significant increase in demand given that every HVO will count for 1 and not for 2. In the U.S., we have a similar situation. We have a proposal from the EPA for the new renewable volume obligation for 2026. And it's a big step-up in terms of demand above 50%. And on top, actually, we got eventually approved the new LCFS target in California from 13% GHG to 22% starting 1st of July. This has been delayed compared to initial assumptions, but now it's there. So it's going to start to make the difference. And finally, it's not a detail, we got clarification about the new clean fuel production credit, the so-called 45Z that was full of uncertainty until a few weeks ago, and clarification creates value. So these are pretty much the main reasons, structural reasons underlying the market upside and improvement you are seeing right now.

Alessandro Pozzi, Analyst

What could be the demand uplift from the new proposals in Germany, especially the double counting removal?

Stefano Ballista, CFO

On Germany, the expectation is to have an uplift of around 1.5 million tonnes. This is a rough estimate but significant, especially since we are already observing an increase of about 0.5 million this year in Germany, and we are recovering from a previous year with virtually no demand. This is in addition to all the other major trends we are seeing.

Jon Rigby, Analyst

Thanks, Alessandro. We're going to move to Martijn Rats at Morgan Stanley.

Martijn Rats, Analyst

I wanted to follow up briefly on the comments about the potential for the buyback to increase, depending on various factors like the macro environment. If I recall correctly, the guidance on Page 3 of the statements indicates that the pro forma leverage ratio is expected to rise back to the 15% to 20% range by the end of the decade, up from the current level of 0.1. This suggests a substantial increase in gearing during the second half of the year, which might indicate limited capacity for a higher buyback. So, I'm curious about how these two aspects relate to each other. Additionally, could you provide a refresher on the timing of the various disposal proceeds expected in the next few quarters, particularly those that are anticipated for the second half of this year? Is there a timing factor that supports the idea of an increased buyback, despite the anticipated higher gearing in that period?

Francesco Gattei, CFO

Thank you, Martin. First of all, it's important to note that a range of 15% to 20% is quite broad, and that's what we presented at the start of the year. This range indicates that we could potentially trend toward the lower end. Additionally, the scenario assumes that some businesses will generate less, particularly because we anticipate an average oil price of 68 for the full year, along with some lower returns. For instance, we are taking a cautious stance on downstream margins, and we may not fully account for the emerging upsides in biofuel. It's also important to recognize that while the disposal plan has progressed, it doesn't mean our opportunities are exhausted, as we continue to negotiate potential deals that aren't reflected in our evaluation or range. This is a conservative approach that considers risks related to disposals and presents a prudent scenario. Therefore, the statements about potential buyback increases and the 15% to 20% range are indeed compatible with one another.

Jon Rigby, Analyst

Thank you, Martijn. We are now going to move to Bertrand Hodee at Kepler?

Bertrand Hodee, Analyst

Yes. Hello, I have two small questions. The first one is a clarification on the Argentina LNG, do you intend to take an FID early 2026? Or it was just the closing of the, I would say, agreement with YPF? And then the second question is also related to LNG, but to Mozambique. Eni and partners have awarded partial awards to contractors. What refrain Eni at this stage to take a full final investment decision? And what will be the stake of Eni after everything is being closed on Coral Norte?

Guido Brusco, CFO

On Argentina, the plan is to have a final investment decision by the first quarter of 2026, while the agreement with YPF on how to proceed with the project will be finalized before that. Regarding Mozambique, we have received full government approval, and we are currently working to advance and finalize the joint venture's final investment decision. Additionally, we have already secured the long-lead items, the yards, and all critical components needed to keep the project on schedule.

Bertrand Hodee, Analyst

And your final stake?

Guido Brusco, CFO

Sorry, say it again?

Bertrand Hodee, Analyst

Because on Coral South, your participating interest was, if I remember well, 25%. And on Coral Norte, what is your...

Guido Brusco, CFO

We have 50%, we have 50% because we have an agreement with one of the other partners to swap interest between the onshore and offshore projects. And so we have taken a higher stake in the offshore.

Jon Rigby, Analyst

Thanks, Bertrand. We're going to move to Matt Lofting at JPMorgan next.

Matthew Peter Charles Lofting, Analyst

Congratulations on the strong strategic execution through the first half of the year. I think it's been very impressive and important to acknowledge. Two questions. First, the production ramp-up. The guidance implies a strong ramp second half of the year versus first half. If you could just remind us of the, let's say, the key milestones over the next sort of 2-3 months to de-risk their full-year target and perhaps where any risks could sit as well? And then secondly, the cash efficiency or cash initiatives that you highlighted in the press release this morning, increasing from EUR 2 billion to EUR 3 billion. I mean, it struck me that EUR 3 billion is quite a significant proportion of CFFO and FCF on an underlying basis. So wondered if you could just expand there on the main initiatives and how perhaps underlying versus transitory some of them may be.

Guido Brusco, CFO

On production ramp-up, this has been a crucial year for organic growth. We had five major projects upcoming: two in Norway, two in Angola, and one in Italy. Three of these have been delivered. The remaining two are Johan Castberg and Balder X in Norway. Johan Castberg has already reached its plateau production, while Balder is currently in its ramp-up phase, expected to complete by the end of the year. We have a project in Angola coming soon, which is an FPSO with an overall capacity of 170,000 barrels per day. Additionally, we have another project, the NGC, which is a gas initiative to supply the Angola LNG plant, set to launch towards the end of the year. We are also looking forward to the second floating LNG in Hong Kong by the year's end. Production has been backloaded, so we will likely see a strong exit rate, positioning us well for an excellent 2026.

Francesco Gattei, CFO

About the cash initiative. Clearly, these are mainly related to working capital management, some cost efficiency, so nothing to do with the cash flow from operation or marginal impact in the cash flow from operation. Everything else is related to other lines of the cash.

Operator, Operator

Thanks, Matt. We're now going to move to Massimo Bonisoli at Equita.

Massimo Bonisoli, Analyst

I have just one question. Last on Libya. If you can provide an update on the status of your Libya gas project, specifically the structures A&E. And what is the expected timing of first gas, please.

Guido Brusco, CFO

On Libya, actually, we have more than one project ongoing. We have three projects, one which is monetization of some gas in one of our Mediterranean platforms, which will come on stream by Q3 of next year. Then we have a compression project to expand the plateau of one of our offshore platforms, which is forthcoming by the end of the year, would help to maintain the plateau. And we have the A&E structure where we are executing the main contract, and the first production is expected by the end of 2027, the first production.

Jon Rigby, Analyst

Thanks, Massimo. Into the final stretch. We have Paul Redman, BNP Paribas.

Paul Redman, Analyst

I've got two relatively brief ones, I think. The first one is just on the CFFO guidance upgrade. If I run the sensitivities and have a little bit more on for GGP uplift, I'm just trying to work out why the increase in CFFO from last quarter, i.e., the guidance for the year, is not as much as the sensitivities would suggest. And secondly, when we talk about these working capital initiatives for 2025, Johan Castberg as one-offs. They can't be replicated in 2026. Is that how I should think about it?

Francesco Gattei, CFO

Yes. About the cash flow from operation increase. This is related to the fact that substantially, you have to take into account that the scenario is not just Brent and FX. So scenario is biofuel, is power, is margin, is chemical, is a lot of stuff. And therefore, these are clearly not completely reflected in the benchmark. We provide them the simple calculation of three metrics. So there is an uplift on the scenario on valuation in performance versus the scenario, and this is what is happening, taking into account of all the variable and not just the three that you are referring to. About the cash initiative, we had to consider cash initiative are improvement in a way you manage your cycle of payment. And therefore, the time you apply this on the first step, is a step up. And then you continue to roll over this initiative in all the remaining year and the following year. So this is a way to change the way you manage your cycle of payment and your cycle of storage.

Jon Rigby, Analyst

Thanks, Paul. And finally, and thanks for your patience. We're going to move to Matt Smith at Bank of America for the final question.

Matthew Smith, Analyst

Just 1 left from me, which I don't think we've covered coming on to GGP gas trade and another strong quarter, once again for Eni, just has been an interesting quarter for trading performance across the space at some point to good results, some less good and usually talking about too much volatility for the traders in some sense. So I just wanted to pick up obviously, how you saw the opportunities in the quarter, clearly played out quite well, but how you see the rest of the year in the current conditions? How conducive is it for that business to keep outperforming, please?

Cristian Signoretto, CFO

Well, thanks for the question. In terms of performance this quarter has been marked by two elements. One is the one-off settlement that we discussed before. And the second one also was the fact that the volatility, as you said, has been somehow less than the first quarter of 2025, but still in good shape, especially, I would say, on the LNG global scenario because of the volatility between JKM and TTF and oil. So that allowed us to take advantage of few arbitrage opportunities globally, and that set up that result for this quarter.

Jon Rigby, Analyst

Thank you, Matt. Thank you, Christian. That wraps us up for the second quarter call. Thank you to everybody for attending. Any follow-ups, then myself and the team are available for your questions. And if we don't speak, have a great summer, and we'll see you again in the autumn. Goodbye.