Earnings Call Transcript - E Q1 2024

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to Eni's 2024 First Quarter Results Conference Call, hosted by Mr. Francesco Gattei, Chief Financial Officer. For the duration of the call, you will be in listen-only mode. However, at the end of the call, you’ll have the opportunity to ask questions. I'm now handing over to your host to begin today's conference. Thank you.

Francesco Gattei, CFO

Thank you. Good afternoon, and welcome to Eni quarter one 2024 results conference call. Our first quarter is an excellent result. We have reported pro forma EBIT of €4.1 billion and cash flow from operations of €3.9 billion. Production growth in our upstream of 5%, and an excellent contribution from our transition business of Enilive and Plenitude meant that we substantially resisted the overall deterioration in this scenario. The continued excellent cash conversion and CapEx discipline also meant that balanced gearing remains comfortably within our range, despite completing the Neptune acquisition and the 2023 share buyback program in this quarter. I will analyze our results in more detail shortly, but the slides also emphasize how busy we continue to be in actions to invest in high-grade and transform our company. I wanted to highlight a few items in the year-to-date because they provide helpful context for our strategic progress. In January, we completed the purchase of Neptune. The transaction is highly synergistic, and it has already delivered a very material value to Eni with significant upside in Indonesia and optionality in the UK, as we will see later. With the Neptune deal, following on from Chalmette and Novamont last year, we have concluded the phase of inorganic positioning to create a new platform for growth, and we enter into a different cycle characterized by the valorization of these new business lines and by the dilution of exploration discovery. As a first step in this new phase, in March, we completed a €600 million equity investment by Energy Infrastructure Partners into Plenitude. This is an important proof point for our satellite strategy, introducing aligned capital from a variable partner, supporting the future growth of the business and confirming the value created. At the same time, we are organically expanding our growth opportunities. In March, we announced the Calao discovery offshore Ivory Coast. This is another major high-equity discovery with potential resources of between 1 billion to 1.5 billion barrels of oil equivalent. It follows our discovery of Baleine in the country in 2022 and the discovery of over 16 billion barrels of oil equivalent over the past 15 years, translating to organic production growth plus over $10 billion of cash via dual exploration actions over the past 10 years. We strongly believe in the value created via the drill bit, and we continue to reinforce our technical competencies paired with the most advanced technological solutions. In this regard, in January, we began the construction of HPC6 supercomputer, which will be ranked as the fifth computing system in the world, with computing power of over 600 Petaflops, 9 times bigger than our current one. Finally, we have just announced the agreement to combine our UK E&P activities with Ithaca Energy, creating a new satellite inside the Eni universe. We believe that the hydrocarbon potential of the UKCS remains relevant, and we have immediately leveraged our enhanced UK portfolio after the acquisition of Neptune to further reinforce our long-term positioning in this country. It is a well-understood model based on complementary portfolios and technical capabilities and one successfully followed at Var and Azule, where the right combination generates significant top-line operating financial and fiscal synergies. Just before going into the first-quarter numbers in more detail, here is a recap of the key industrial messages from our Capital Markets Update in March. We now have a complementary portfolio of high-quality businesses that align with the transition and the Trilemma. While that integrates across the company, it leverages any strengths in technology focus and early mover status, and which, crucially, together offer the prospect of sustainable growth. We see a 13% CAGR in cash flow from operations per share in a flat scenario, among the highest in our peer group and a progressive diversification and improved quality in our sources of cash. Our strategy will make Eni a larger and more profitable company at the end of our current plan and beyond. Our distinctive industrial approach is supported by a robust financial framework that balances the use of cash flow for shareholder returns with the investment for growth and the balance sheet. Our satellite model helps with appropriate capital allocation and provides investors with visibility on the performance and valuation of activities with very different financial profiles. Ultimately, the transition will only be real if it creates material and sustainable returns and profitable business. Moving to the quarter, the next three slides provide analysis of today's results. We recorded an excellent quarter for production with the impact of the Neptune acquisition, the ramp-up of Ivory Coast in Norway, and good performance in Libya. This production performance helped to mitigate the weaker gas price. GGP results are down year-on-year versus an exceptional quarter for trading and optimization in the first quarter of 2023, and also down versus the last quarter of 2023, which saw the benefit from the arbitration procedure. However, the Q1 result is in line with our expectations given seasonal strength but low market volatility. You will have seen we have re-segmented Enilive and Plenitude together to highlight their importance, together as material growth businesses for Eni in the changing energy market. An important theme this quarter is growth. I mentioned hydrocarbon production up 5% year-on-year. But in these transition businesses, it is really significant that bio throughputs have more than doubled, renewable energy generation is up 12%, and capacity at the end of the quarter is up 30% year-on-year, while charging points are up 33%. And we are also progressing the regulatory framework for our CCS program. Our more traditional downstream businesses are now grouped together with refining showing improved utilization and capturing the quarter-over-quarter improvement in the refining margins. Versalis was again loss-making, albeit an improvement over the last quarter, but recall we set out our plans at the Capital Markets Day in March to restructure and transform our chemical operation, and you should expect more of this as we go through the year. We have demonstrated good cash conversion once again, and this will drive a higher distribution, as we indicated it would be in March. With a strong first quarter delivery and the prospect of improved macro conditions versus the plan, we are raising our guidance for cash flow from operations. We are now seeing cash flow from operation for the full year in excess of €14 billion. Incidentally, marking to market based on a snapshot of the market this week would generate an even higher figure. As we set out in March, our distribution commitment is to share up to 60% of additional cash flow above plan with our investors via the buyback. Therefore, we are raising the 2024 buyback by 45% to €1.6 billion from €1.1 billion with a continuing commitment to revisit in each of the remaining quarters to update on better financial performance and the associated distribution. Our aim is that, at a minimum, we deliver the underlying business performance we target and ensure we capture the available upside from the scenario. Our shareholder meeting on the 15th of May will consider the proposal to authorize our new buyback program up to a maximum of €3.5 billion. Our normal practice will be to begin repurchases shortly after this authorization. If authorized, our 2024 dividend of €1 per share paid quarterly will start in September. Our CapEx in the first quarter of €2 billion was in line with a full-year figure of around €9 billion, taking into account this period is historically lighter on spending. Similarly, we confirm that our major strategic inorganic acquisitions have been completed, and we are making good progress in our target of a front-end loaded net €8 billion cash in over the four-year plan period, which will result in net CapEx of €7 billion to €8 billion in 2024. In the annex, you will see also the bridge to net debt with leverage at 23% at the end of March, which remains well within our guided range despite the portfolio cash out and the completion of the 2023 buyback. Turning back to the proposed combination of our UK E&P operations with Ithaca, let's take a more detailed view. You are familiar with our use of satellite structure at Var and Azule. In the upstream, we use the satellite structure to build scale, realize synergies, increasing near-field exploration, development potential and matching complementary cash flow profiles, and efficiently access capital markets. With Ithaca, we tick all of the boxes. With the addition of Neptune and now Ithaca, we are moving from a mature and quite marginal position in the UK to a leading status in terms of production of over 100,000 barrels per day in resources. Quite clearly, the UK has its challenges, but we are confident we are now in a position to access considerable operating and cost synergy critical for business success in a mature basin, give ourselves significant optionality and helping to provide additional supply while addressing emissions. Together with our existing activities in CCS, which were also boosted with the Neptune purchase and our participation in the giant Dogger Bank Wind Farm development, we are establishing ourselves as a significant participant in the UK energy industry as it grows and decarbonizes. Reviewing our guidance versus March, we have increased our confidence in upstream production. Underlying profitability at GGP, Enilive, and Plenitude are all confirmed. So, with a more positive scenario, we have raised 2024 guidance for both group pro forma EBIT and cash flow from operations in excess of €14 billion each. With that in mind, we can also confirm our gearing guidance and raise the expected buyback for the year by 45% to €1.6 billion, evidencing our commitment to share upside with our shareholders by means of a clear attractive distribution policy. Finally, I can provide some guidance for Q2. We expect production to be lower sequentially, reflecting seasonal maintenance impact and any divestments will conclude. In line with typical seasonal patterns reflecting current trading environment, we expect the Q2 results from GGP to be lower than Q1. For Plenitude, we expect a solid Q2 performance in retail, albeit with lower seasonal volumes as well as renewable contributions that continue to reflect the recent capacity growth. We anticipate utilization rates in our conventional refineries to be down sequentially because of planned maintenance, while biorefinery availability is expected to remain steady at around 90%, with scope to capture higher seasonal demand in marketing. To conclude, we are very pleased with our progress at the outset of 2024, demonstrating evidence of delivering against all our key objectives. And we can see continued positive momentum across the remainder of this year. We are also pleased to be able to materially raise the shareholder distribution for the year while continuing to grow a larger and more profitable Eni. This concludes my review of the quarter. Along with Eni's top management, I'm ready to answer your questions.

Operator, Operator

The first question is from Josh Stone with UBS. Please go ahead.

Josh Stone, Analyst

Two questions, please. Firstly, your net debt was up sharply in the quarter, and you've given a helpful chart on that. Looking forward, clearly, it'll come down. You've got some disposals to get away, probably working capital releases. But a question more about timing. When do you expect to see the benefits of these things to come down? Will it be this year, later this year? Will it start next year? Just help us understand the progressive net debt, that would be great. Secondly, on Ithaca. Congratulations on agreeing the merger. We got another satellite to go up into orbit. I guess the question is, at what point do we think you reach critical mass on the satellites? You acknowledge and we've still got Plenitude, Enilive, many others potentially to come. Will you continue to be active in this strategy elsewhere in the portfolio? Are there other things you're looking at, potential satellites?

Francesco Gattei, CFO

On the timing of the net debt reduction, this quarter marks the conclusion of the two major factors influencing our net debt for the year. These factors are primarily linked to the acquisition of Neptune, where the total cash outlay and debt incurred is approximately €2.5 billion. Additionally, this quarter is typically affected by working capital changes. Together, these elements account for more than a 5 percentage point impact. By implementing disposals and improving cash flow timing, we aim to return to our desired range following a phase of recent acquisitions, which over the past 15 months includes not only Neptune but also one-off investments like Chalmette, Novamont, and several renewable projects, totaling over €5 billion in expenditures. This corresponds to about a 10 percentage point increase in leverage. We are now entering a new phase focused on value creation through a dual exploration model, which will allow us to generate additional resources from the tail assets we plan to sell. This progress will become evident in the coming quarters, starting with the second quarter and accelerating throughout the year. We have already observed the enhancing quality of our portfolio designated for market valorization. Regarding Ithaca and the satellites, these satellites have proven significant. If you compare our position in Var in Norway before its launch to our current standings in Plenitude, Enilive, and Angola, it's clear there is substantial growth. The satellites enable us to focus on generating cash to drive growth and provide us with more opportunities, such as utilizing Var's position in listed entities for potential mergers and acquisitions. The significance of the satellites is clear and is expected to expand across all four areas. Ithaca further contributes to this, and while we are considering a few other options, it is still too early to provide details. However, this strategy will offer additional opportunities moving forward.

Operator, Operator

The next question is from Giacomo Romeo with Jefferies. Please go ahead.

Giacomo Romeo, Analyst

Yes. The first question is on GGP. What you reported, based about 40% of the target you have for the year. At the time of the CMD, you clearly said that the guidance was based on market conditions that you were seeing back then. Just wondering, it seems that these conditions have somewhat improved, not just the flat price, but also in general volatility around spreads. Can you confirm that you're actually seeing these improvements? And do you expect PSV to be a healthy premium during the summer on the back of the trend of Italian gas storage? Second question is still relatively close to GGP. And just thinking about what the we have from the Egyptian government about the outlook of importing LNG this summer, 8 to 10 cargoes. Just wondering what this means in your mind for the overall outlook for LNG exports out of Egypt for the year?

Francesco Gattei, CFO

I will leave the answers to Cristian Signoretto, Head of GGP.

Cristian Signoretto, Head of GGP

Yes. So, thanks for the question. So, when it comes to the target, so yes, in the first quarter, we have realized 40% of the base case target that we have set during the Capital Market Update. I think this is a bit usual in the sense that usually, for seasonal reasons, the Q1 is always the strongest quarter of GGP also in the past. So, I'd say in terms of volatility, well, the first quarter actually was pretty much in line with what we expected during the Capital Market Update. So, that means that we are still looking forward for the next nine months to see more volatility and more opportunities to be spread and captured in the market. And also, the guidance, the upper part of the guidance is also linked to some renegotiations that we have ongoing. And so, in the next nine months, we will be trying to close them down and get the upside that we were looking for. When it comes to Egypt, yes, clearly, the first quarter of this year, we have seen a steep reduction in export capacity from Egypt due to the supply and demand imbalance and the Middle East situation. In December, the country expects to bring LNG from outside. We think that the next winter season could be another window of opportunity for exporting some LNG cargoes, clearly, not many, vis-a-vis the past, but given the strong seasonal demand and supply balance of Egypt, we still think that there is a window of opportunity for the next winter to be exporting some cargoes.

Operator, Operator

The next question is from Matt Smith with Bank of America. Please go ahead.

Matt Smith, Analyst

I have a couple of questions. First, regarding net debt and timing, thank you for the guidance on gross CapEx for the year. As you mentioned, there is still a gap between the net CapEx guidance and the gross CapEx guidance for 2024. My question is, how confident are you in achieving the disposal proceeds this year? Essentially, how critical is the timing of these disposals for meeting the net CapEx guidance in 2024 compared to the broader four-year plan, especially considering the goal of maximizing value? My second question is about GGP, focusing less on volatility and more on your views about the fundamentals of the European gas market. Some investors seem surprised at the resilience of prices in Europe, so I’d appreciate your thoughts on that. Additionally, any insights on how European gas demand has evolved would be helpful.

Francesco Gattei, CFO

In terms of the confidence regarding the sales, we are extremely confident. We are already engaged in several advanced cases. In many instances, we are nearing final discussions, so we are very close. We are exploring different terms with other cases, but for us, everything hinges on achieving the proper value. We are not rushing or feeling pressured to sell as we aim for a specific reduction. Our goal is to secure good deals, and we have demonstrated our effectiveness in the past years. We have also successfully finalized deals after announcements, and we expect the same outcome for upcoming transactions. Now, I will hand it over to Cristian to discuss the fundamentals of the European gas market.

Cristian Signoretto, Head of GGP

Yes. So, thanks for the question. If you remember, during our Capital Market Update, we have discussed the fact that we still see a finely balanced market for Europe and actually for the world in the next at least 12 to 18 months. And this actually is the case because we are seeing in Asia, and especially in China, a pickup in demand. In the first three months, we have seen a 17% growth in LNG in that area in China. And it's true that demand in Europe has not been very robust because of the weather. But if you look at the fundamentals, we are seeing some pickup in the industrial demand recovery. We have seen also countries like Egypt, as we said before, flipping from being an exporter to being an importer, which gives another, let's say, story into the balance of the LNG market. Freeport is out of maintenance, so let's say, a few million tons of LNG can really change the balance of the market. We think that the summer will still be volatile because of this situation. Clearly, the geopolitical situation can add to that. We know also that there is uncertainty about the end of the Russian transit in Ukraine by the end of this year. So, we feel that the next 12 months could be still interesting and volatile from a market perspective.

Operator, Operator

The next question is from Alessandro Pozzi with Mediobanca. Please go ahead.

Alessandro Pozzi, Analyst

Two questions for me. On Enilive, I noticed that the biorefining throughput has increased materially, well above 90%. And I'm not sure whether that was driven by a redetermination of the effective capacity. But I was wondering if you can maybe give us some color on the increase in throughput there? The second question is on the tax rate and income from associates in the E&P. Clearly, E&P having more equity accounting volumes. And I was wondering whether that will have an effect on the group tax rate? And also overall, whether the income from investments in E&P will be lumpy going forward, whether there will be more quarters or quarters where dividends are going to be richer compared to other quarters? That's all for me.

Francesco Gattei, CFO

I'll leave the first question to Stefano Ballista that should be on the phone.

Stefano Ballista, Head of Biorefining

Yes, no. The utilization rate saw a significant step-up. We are around 94% with Gela and Venice, even a little bit higher. The main reasons are twofold. First, we didn't have any planned maintenance in this period. Second, we are implementing our operational excellence program that is step-by-step improving overall operating performance. So, this quarter, we got, I would say, the full results of this effort with pretty much no issues at all. And that's the level of utilization we have in place.

Alessandro Pozzi, Analyst

What throughput? Or do you expect for the year in terms of utilization rates?

Stefano Ballista, Head of Biorefining

Let's say, the average utilization rate, including planned maintenance, is about 85% to 90%. Next quarter is expected to be around 90%, a little bit higher given a low number of planned maintenance.

Francesco Gattei, CFO

About the tax rate, the main difference on the tax rate is related to the mix of production countries and gas pricing. This is a major factor of difference compared to last year, more than the contribution from associates, so that this margin is not explaining the tax rate change. In terms of distribution and dividend, we have different distribution policies between various associates, and these are spread relatively steadily during the quarters.

Alessandro Pozzi, Analyst

And in terms of the tax rate, at the group level for '24, should we assume a little bit below 50%?

Francesco Gattei, CFO

Yes, clearly related to the price assumption that we are showing.

Operator, Operator

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

Biraj Borkhataria, Analyst

The first one is just a follow-up on Egypt. I was wondering if you could just give a bit more-broader perspective on your activities in the country. Obviously, it's an important one for Eni. It doesn't look like the receivable balance has moved this quarter. But could you just talk about whether you are looking to shift your activity levels up or down given the situation ongoing? And then the second question is on divestments and the gross and net CapEx. You've talked to the net CapEx figure at the CMD. And I guess there's two parts of that as the upstream, which I argue, a bit more straightforward, and then there's a satellite portion with the various transactions that are going on. But when you farm down things like Plenitude, where the new partners are recapitalizing the entity, do you count that as in your divestment targets? Because I guess from the outside, you don't actually receive the cash on that front. So, I'm trying to understand how you're accounting for the various different things that are going on because there's a lot of corporate transactions you're planning to do.

Francesco Gattei, CFO

First of all, I'll answer this. Clearly, once I receive the cash from an outside partner in Plenitude, Enilive, I consolidate the cash exactly in fully consolidated the debt of the company. So that is a reduction in our, let's say, cash imbalance. So, by definition, I will take that into account. I'm surprised by this kind of comment. In terms of Egypt, I can confirm that the overdue is in line; it was substantially not affected in the quarter. And I will leave the floor to Guido Brusco, the Head of Natural Resources, for the description of feedback related to the activity in the country.

Guido Brusco, Head of Natural Resources

Given the size of operation and activity, of course, we still have some limited field activity and production optimization projects. We have clearly slowed down a little bit the exploration, but I mean, overall, we are running our activity as per the plan and as we expected to carry out over this year. So, no big changes other than some slowdown in exploration activity.

Operator, Operator

The next question is from Henry Tarr with Berenberg. Please go ahead.

Henry Tarr, Analyst

Two. One is just on the share buyback uplift. I guess the increase comes from the higher scenario and so the lift to your cash flow estimates. But if you could just sort of talk through how you got to the 1.6, that would be great? And then I guess, the current guidance is, if cash flow is better than the 14 billion, is it an incremental 60% of the incremental that will come through into the buyback? That's the first question. And then just on the second question. You mentioned the supercomputer that you're investing in. What sort of an edge do you think it gives you through the reservoir modeling and exploration side?

Francesco Gattei, CFO

Okay. In terms of the updated guidance of the buyback, clearly, this is a mix of two elements. One is the strategic execution. If you have seen production performance, the growth in the renewables and Enilive, the downtime of the biorefineries, and the performance clearly that we've already accumulated in our traditional refineries. All these are facts that are behind our performance in the past month, the last quarter. So, we have already cashed this advantage in the past month. And the other element, clearly, is the scenario. The scenario that we designed at the beginning of the year was a scenario where the price of oil was 80. The price of oil today, year-to-date, is almost 85. The gas in Europe, as we discussed before, is much stronger than expected. Some proved to be extremely resilient. So, I think that proves that the energy environment is more supportive. There is also a geopolitical risk that, with the Iranian events of the past weeks, has added some additional factors to be bullish. And clearly, we are quite confident that the performance we have seen so far is continuing. So, I would say that there is a contribution of internal and external factors. On the supercomputer, I will leave to Guido Brusco for the comment.

Guido Brusco, Head of Natural Resources

I mean, the supercomputer is just one element of our competitive advantage, together with, of course, the technology, which is our proprietary algorithm, which helps our staff to better understand geological and reservoir modeling, and, of course, the skill set of our people. We have teams. We have always trusted in exploration as an engine for both the company. We never dismissed through-the-cycle people, and we maintained knowledge capability in the company. So, the supercomputer is a big enabler, but I mean, the high computational capacity without the right skill set and without the algorithm, which would drive this computational capacity towards something meaningful, would not completely explain our competitive edge.

Henry Tarr, Analyst

Okay. Is there a CapEx number that you've given for the computer itself? Is it material or not really?

Francesco Gattei, CFO

It is around €40 million, €50 million, so not particularly expensive. Sorry, €140 million, €140 million.

Operator, Operator

The next question is from Irene Himona with Bernstein. Please go ahead.

Irene Himona, Analyst

My first question on Enilive, if you can talk a little bit about the performance of marketing within that in the quarter? And also, as you step up your biorefining throughput, are you seeing a corresponding step-up in the agri feedstocks where I think you aim to be sort of 30%, 35% integrated? And then the second question, if we go back to the asset disposal plan, the €8 billion over four years, which really takes you back to pre-Neptune, I guess, we had Neptune, so it's really €10 billion over four years. You said at the beginning in your prepared remarks that the dual exploration model has delivered €10 billion in 15 years, I think. So how confident are you in €10 billion over four years, basically?

Francesco Gattei, CFO

First of all, and then I will let them answer related to the marketing and to the agri feedstocks to other people. About the disposal, that €10 billion actually was accumulated in less than five years because we, from 2013 to 2018, if you remember, we clearly showed that this overall disposal plan over the last 10 years, because we are associated with the number of discoveries that we did over those 10 years. But if you remember, the model deal and the door deals were substantially concluded between 2013 and 2018, or there was just a small, let's say, portion at the end of 2019. So, four years or five years. Clearly, now we are even more confident because, at the end of the day, we are working on a larger set of opportunities that are coming from the traditional upstream but also through the new satellites. So, I believe that four years, five years in order to execute a plan of disposal is the one that we mentioned in the Capital Market Day is absolutely achievable. I then leave the floor to Ballista, Stefano Ballista for the marketing; and then to Guido for the agri feedstock.

Stefano Ballista, Head of Biorefining

Yes, Francisco. Yes, marketing, we got a very good performance in this first quarter. Two main reasons. The first one is related to a very good contribution from the wholesale business. This is coming from a revised strategy focused on the optimal trade-off between volume and margins. The contribution got fully realized this quarter as well. And second point on retail performance, it's good. We managed, in a very peculiar way, let's say, the optimal pricing strategy per cluster. And then, we started to get increased results from non-oil activities.

Guido Brusco, Head of Natural Resources

On the integration and the feedstock, I mean, the 30% is, of course, at a regime. So when we mentioned this level of integration, it was at the back end of the plan. As you know, we have quite an exciting ramp-up of production over time. Just two years ago, we were producing a few thousand tons of vegetable oil. Last year, we produced around 40,000 tons, and this year, 100,000 tons. So you can see the scale of the ramp-up. We have currently projects in nine countries: Kenya, Congo, Ivory Coast, Mozambique, Angola, Rwanda, Kazakhstan, Vietnam, Italy, and more countries, and we are adding more countries over time, which provides us kind of diversification by geography and by kind of feedstock, which makes us more confident about our ability to deliver those volumes at the end of the plan.

Operator, Operator

The next question is from Peter Low with Redburn Atlantic. Please go ahead.

Peter Low, Analyst

The first question was on the Plenitude results. Pro forma EBITDA, we did double Q-on-Q. And you're already a third of the way to the full year guidance of €1 billion. Can you perhaps give a bit more color on what's driving that improvement and whether there are any seasonal or one-off effects in there? I was just trying to gauge whether you're running ahead of plan there. And then another question on the biorefining business. How do you see margins evolving for the rest of this year? In the U.S., it looks like they're still quite weak, but we have less visibility as to what's happening in Europe.

Francesco Gattei, CFO

Yes, the first question, Plenitude to Stefano Goberti. They said they had Plenitude, and then again to Stefano Ballista.

Stefano Goberti, Head of Plenitude

Peter, the first quarter of 2024 was a good quarter for us, but we are taking advantage of what we have done so far also last year. So, putting in production our renewable capacity. And also, we see good results in our retail activity, both in Italy, where we maintain good marginality, and also abroad where we are recovering marginality because the market conditions are better off compared to the prior period where the regulator put in measures to protect vulnerable clients. So, now better prices and better market conditions allow us to do our job better. So, there are no one-off elements in our result; it's just putting together our activity and getting into results.

Stefano Ballista, Head of Biorefining

Yes. In 2024, we see it as a transitional year for margins in both Europe and the U.S., which is widely acknowledged. This is influenced by macroeconomic factors of supply and demand, particularly due to changes in mandates in Sweden. We anticipate margin improvements in the latter half of the year in Europe for two main reasons. Firstly, we've received approval from Holland for new mandates that will increase energy content to about 30%, translating to an additional 400,000 tons per year. Given the current market size, this represents roughly a 10% increase. Secondly, there is an ongoing antidumping procedure concerning imports from the Far East that could alter market dynamics and competition, positively impacting margins. As for next year, we're also seeing significant developments related to aviation fuel regulations and the rollout of RED III, which has been approved, although each state has 18 months to implement it, meaning its effects will be seen in future years. Regarding the U.S., we have similar expectations, with heightened focus on 2025. We are awaiting the final approval of revised carbon targets for greenhouse gas reductions in California. There are indications of a potential increase from an initially expected 5% to somewhere between 7% and 9% by 2025, which would significantly boost demand and change market dynamics.

Operator, Operator

The next question is from Michele Della Vigna with Goldman Sachs. Please go ahead.

Michele Della Vigna, Analyst

Congratulations on the higher buyback. Two questions, if I may. The first one is on LNG. You're probably negotiating some long-term contracts for some of your new projects, including Congo. The second floating LNG in Mozambique. And I was wondering how you're finding the appetite to sign long-term contracts at this time? And if the shape still looks more or less 12% to 13% of Brent prices? And then second, I wanted to come back a little bit to your buyback framework. It's very clear how you're distributing to shareholders 60% of the extra cash flow from the initial forecast you made at the Capital Markets Day. But I was wondering if perhaps it wouldn't be worth also considering some of the value from the proceeds you're getting from some of your high-margin businesses as part of something that you may want to share with investors in the formal buyback?

Francesco Gattei, CFO

Regarding the buyback, we prefer to align our distribution policy with the strategic evolution of the company, especially in terms of cash flow distribution and increasing distributions during favorable conditions. Once we rebalance our leverage and portfolio activities, our asset configuration will change, allowing us to adopt a policy that supports distributions based on cash flow from operations at varying percentages. However, we want to avoid dealing with any one-time distribution elements tied to the portfolio. The portfolio played a role in shaping Eni's current setup and will continue to be important for optimizing value through divesting mature assets or generating expected cash flow from exploration. This approach is part of a larger strategic vision where distribution is linked to cash flow from operations. Now, I'll turn it over to Guido for the LNG update.

Guido Brusco, Head of Natural Resources

Michele, following my comments when we were discussing the fourth-quarter result, we still see appetite. At that time, we were commenting on some results of some of our bids. We now have more data indicating that there is appetite, particularly in the Far East, where there is an interest to sign long-term contracts. This is based on those players' view on the growth of economies and also the pace of the phaseout of coal in that part of the world.

Operator, Operator

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

Alastair Syme, Analyst

Francesco, I may have missed this during the Capital Markets Day, but could you clarify why the equity sold to ERP for Plenitude decreased from 9% to 7.6% at the close? Is it related to the amount of debt involved in the business? Also, I noticed reports indicating that you have reduced your stake in Ghasha in Abu Dhabi from 25% to 10%. Can you elaborate on the reasons for this change? While you haven't disclosed the price, could you provide some context regarding the deleverage question?

Francesco Gattei, CFO

Yes. About the Plenitude deal, if you remember, the EIP had, let's say, they presented an initial offer with an option to increase and raise that option for a certain amount that is not covering the overall full option. Clearly, it has nothing to do with us. It's a decision by the potential buyer. Discussions are ongoing and still continue on potential upside of this stake, but it's something that is related to the funding capability of the buyer and from their point of view of the willingness to proceed with a higher stake. About the Ghasha in Abu Dhabi, I leave it to Guido.

Guido Brusco, Head of Natural Resources

About the reduction in the participating interest in the Ghasha project, let me start from the very beginning. This project started in 2018; we started to look at this project, then there was COVID. We re-looked into the project. By then, our pipeline of projects, thanks to the discoveries made and other opportunities that came across, expanded quite significantly. At the moment, we have a few of them running. We have a project in Ivory Coast, we have a project in Congo LNG, we have a project in Libya, and coming projects in Indonesia and Mozambique. So we had to, I mean, relook at our capital allocation in the upstream project and rebalance allocation, both geographically and also by the type of commodity. That was the reason for the rebalancing of the participating interest in the gas project.

Alastair Syme, Analyst

And can you say if there's much value? Or is it more about the forward CapEx allocation?

Guido Brusco, Head of Natural Resources

It was more about the CapEx allocation that was driving us to be, I would say, more balanced.

Operator, Operator

Next question is from Lydia Rainforth with Barclays. Please go ahead.

Lydia Rainforth, Analyst

Two questions, if I could, please. On Versalis, can you just walk us through what steps get taken over the course of 2024? I know you're looking at sort of EBITDA neutral by sort of in 2025, but obviously, there's quite a lot of work to do there. So, I just wanted to work through what steps we might see in 2024? And then secondly, if I could come back to the Ithaca transaction. Just sort of going through the details, maybe talk about the $500 million potential dividend payout for this year. I'm going to say, is it a cash flow accretive event for Eni, that Ithaca transaction?

Francesco Gattei, CFO

I leave the floor to Adriano, and then I will return back for the answer on Ithaca.

Adriano Alfani, Head of Versalis

Thanks, Lydia, for the question. As we communicated in the Capital Market Day in March, the transformation Versalis journey is not a one-quarter journey, but it's a four-year journey, and probably will take a few more as we said. Quarter-over-quarter, we are constantly increasing our efficiency in terms of cost reduction. This is something that we've been able to do already in part in Q1, but it's not all coming in the quarter. We continue to accelerate the transformation of the company to build a platform. This is the reason why, although it was not in Q1, but in April, we announced the acquisition of another compounding company, Tecnofilm, that will enable us to specialize in the end-user market. Of course, we have a strong discipline like we always have done in the past, but we are accelerating the CapEx reduction, especially not for the reduction on agency and asset integrity, that remain our first priority, but on businesses that generate less margin. So, we are perfecting on trajectory with what we announced in Capital Market Day, but the progress is quarter-on-quarter, not in one single quarter.

Francesco Gattei, CFO

About Ithaca, the distribution policy that was designed with this target of $500 million is, say, partially accretive versus our stand-alone case. We have already included this in our plan. So, I would say the answer is yes.

Operator, Operator

The next question is from Kim Fustier with HSBC. Please go ahead.

Kim Fustier, Analyst

I would like to follow up on the Ithaca combination. It seems that the consideration paid by Ithaca suggests a significant discount to the fair value NAV of your UK assets. I'm also surprised that the initial 38% to 39% range hasn't been adjusted, especially in light of the notable decline in Ithaca's share price over the past four weeks. Could you explain how the final valuation was determined in this situation? Additionally, could you discuss the potential impact of the reimposition of U.S. sanctions in Venezuela on your activities?

Francesco Gattei, CFO

On the Ithaca deal, clearly, we negotiated the deal over a number of months. I think that the reference of a price level that is on a daily basis shifting and moving is not the proper way to assess a long-term strategic deal that is based on cash flow expectation, on rerating expectation on synergies and upside. So, the 38.5% is the result of all these assumptions and not the effect of daily trading. I would like to also add that we have a 200 or more improvement in terms of value, net book value. So, the deal is generating, let's say, rerating in the range of €200 million versus what we have in our accounting. For Venezuela, I will leave to Guido.

Guido Brusco, Head of Natural Resources

On Venezuela, we are recording an increasing trend of lift in equity over time in the last quarter. And despite GL 44 being removed, we still expect to continue this positive trend of cargo assignment. The GL 44 has not been renewed, but the so-called procedure that the U.S. authorities could provide to recover credit, which, in our case, being the gas production very necessary for the country has always been granted in the past.

Operator, Operator

Next question is from Alejandro Vigil with Santander. Please go ahead.

Alejandro Vigil, Analyst

Just one question about the CCS, your CCS strategy. When are you expecting the first FID of the projects and the potential size of the investment?

Guido Brusco, Head of Natural Resources

On the CCS, our overall strategy views it as a key component of carbonization and achieving global net zero goals. We are currently working on a project in Italy, in Ravenna, which is the first phase of a larger initiative that we anticipate starting in the second quarter. Following that, we have a Phase 2 planned with a capacity of 4 million tons per annum. We aim to make a final investment decision in 2025 and begin injection activities before 2030. Additionally, in the UK, we are engaging in a project in the Liverpool Bay area known as HyNet, where we have successfully negotiated another agreement for the economic license. We expect to obtain the full economic license by the third quarter and to finalize a cluster investment decision by the end of the year, with reinjection starting before 2030 as well. We also have another project in the UK, Bacton, located in the Northeast of London. The estimated investment for the transport and storage segments of the Phase 2 of Ravenna and HyNet is between €1.7 billion and €1.8 billion gross.

Operator, Operator

Next question is from Massimo Bonisoli with Equita. Please go ahead.

Massimo Bonisoli, Analyst

Two follow-up questions remaining. The first one, Plenitude, given the very strong performance in the first quarter, the implied guidance for the remaining nine months would be down year-on-year, if I calculated it correctly, since your renewable generation should be up year-on-year. Could you shed some light on the assumptions behind the guidance? Maybe you kept a good level of contingencies there. The second follow-up on the buyback. Could you comment on the speed of the buyback that should be executed on a monthly basis?

Stefano Goberti, Head of Plenitude

Thank you, Massimo. The guidance is confirmed at €1 billion of EBITDA. Of course, we are going ahead well with our progress in the strategy. So, you're right, we have 3 gigawatts of installed capacity, and we are working on 2 gigawatts of installation in 36 different projects across our operational areas. And also in retail, we are making good progress in our strategy and performance, especially in Europe. So, for the time being, everything has been doing well, and we promised €1 billion. We target this €1 billion.

Francesco Gattei, CFO

On the buyback, you know that we started the buyback as soon as we have received the approval by the AGM. It can last up to the following year, up to the month of the same year, so March and April of the next year. That is the period we are looking at. And clearly, it will depend on the evolution of the business and the scenario. But you have to consider a preliminary estimate of this, let's say, a 10-month period as a reference.

Operator, Operator

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

Bertrand Hodee, Analyst

Yes. One question left. It's on Ivory Coast. Can you give us a bit more color on the Calao discovery and the optionalities behind that discovery? And just still, it was on a different block from Baleine. So, what's the next step on Calao or more broadly on Ivory Coast exploration program going forward?

Francesco Gattei, CFO

Aldo Napolitano will do exploration, and then Guido will give the broader view on the Ivory Coast.

Aldo Napolitano, Head of Exploration

Yes, the Calao discovery is a new discovery. It's a discovery in a different play than Baleine. So we believe there are many options in Ivory Coast in terms of exploration. So, new players like the one of Baleine or the traditional play, if you like, in the case of playing geological themes in the case of Calao that is coming from the experience that we have also in neighboring basins. So, we have exported the experience that we had there. We believe there are opportunities. You have seen, I guess, in the case of Baleine. We have gotten acreage addition to the discovery itself. We have some more acreage around Calao. We will work on defining new opportunities. For what concerns Calao itself, it's quite a large hydrocarbon accumulation that will require some appraisal activity. We are working on different scenarios for development, depending on the final results from the data that we will acquire.

Guido Brusco, Head of Natural Resources

This is Calao and the new discovery. On Baleine, we are running full steam now with the Phase 2 of the project, which will come on stream by the end of the year with an additional production of about 40,000 barrels of oil, which will add to the 20-plus, 22,000, 23,000 barrels, which is the current production of Phase 1, which is largely exceeding the initial expectation. So once Phase 2 comes on stream, we'll have an overall production of oil between 60,000 and 70,000 barrels per day and gas production of about 70 million standard cubic feet per day. While we are executing Phase 2, we are in the feed procurement phase for Phase 3, where we expect, I would say, by the beginning of 2025 to make a decision on an investment. This will be an FPSO, a stand-alone FPSO, and would bring total production of oil to over 150,000 barrels per day and gas to 200 million standard cubic feet per day.

Francesco Gattei, CFO

I think that we have completed the call. I would like to thank you for all the questions. Clearly, we will leave you, if you have any additional requests, to be in contact with our Investor Relations team for all the additional information that you look for. Bye. Thank you.