Earnings Call Transcript - E Q3 2022

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to Eni's 2022 Third Quarter Results Conference Call. For the duration of the call, you will be in listen-only mode. The call will be hosted by Mr. Francesco Gattei, Chief Executive Officer. I am now handing you over to your host to begin today's conference. Thank you.

Francesco Gattei, CEO

Okay. Thank you. Good afternoon. Welcome to Eni Third Quarter and 9 Months 2022 Results Conference Call. The world and the energy markets, in particular, continue to be impacted by very significant geopolitical events, uncertain economic conditions and volatility. This would be challenging upfront, but we are also continuing to deal with the legacy of the pandemic on supply chains, the long duration energy transition and the deep cyclical legacy of 7, 8 years of underinvestment. In that context, we are delighted with how Eni is delivering on its strategic and financial objectives, while managing the evident risks. In the last quarter, oil price fell from the levels seen in the previous two quarters. The oil market has pulled back and has traded mostly in the $90 to $100 barrel range with a number of important but often competing factors such as the pushing up of production towards the ceiling of capacity, the impending EU ban on Russian imports, the U.S. strategic reserve release and the recent OPEC Plus decision on production cuts. On the demand side, there is a risk of slowdown or recession, amid inflation and rising interest rates. But against that, Chinese demand will likely rebound in 2023. And not forgetting, OECD commercial inventories are at historical lows. Natural gas prices are key areas of attention among investors, rising on a quarter-to-quarter basis, and they have been even more volatile than oil. It is encouraging that European gas storage has been refilled for winter '22/'23, which will be weather-dependent and influenced by consumption effects, while also impacted by any remaining Russian supply. Recent price softness, I mean, the warm weather and high storage in a typical shoulder month cannot be the guidance for where the winter may trade. The third quarter refining margin fell from the record levels of the second quarter, but was still robust, helped by strong middle distillates, albeit negatively impacted by high energy costs. In the chemical space, energy and feedstock costs have been a significant headwind and the slowing in end-user demand is a warning of the potential for a wider slowdown. In the last quarter, we have made significant strategic advances across all businesses and continue to deliver positive results. Third quarter 2022 demonstrated, once again, Eni's strong operating and financial characteristics. Net income rose around 160% year-on-year and was in line with the second quarter despite a lower crude oil price and the shortfall in refining margins. This reflects the E&P doing a good job catering to this scenario, while GGP successfully managed another highly volatile and complex quarter. In Energy Evolution, results in R&M were excellent despite the weaker margin. Our net result was entirely produced from the international business as the Italian activities registered a negative performance in the third quarter and in the first 9 months. Cash flow from operations was also excellent at €5.5 billion, up 64% year-on-year. This cash inflow allows us to manage liquidity in the business at a time of considerable claims on working capital, fund our investment plans, remunerate our investors, and continue to strengthen our balance sheet. Turning to our two main business segments in a bit more detail. Firstly, on Natural Resources. Our E&P earnings resulted from attractive leverage to oil prices and cost control and came despite the shortfall against expected production in the quarter arising out of unplanned downtime at Kashagan, as it came out of turnaround, higher impact from force majeure mainly related to Nigeria and Norway's lower contribution. On the gas price, it should be kept in mind that our leverage to the North European gas options is primarily below the EBIT line. Furthermore, from August, associated income also included our new satellite, Azule in Angola, which is now reported below the EBIT line. GGP results were generated in a high gas price environment, but one that continues to be very challenging given its unpredictability and volatility. In the third quarter, we were able to manage market risk and deliver good results through gas and LNG portfolio optimization. Meanwhile, we also ensured security of supply for our Italian customers. I just want to spend a few moments on Azule. In August, Eni and BP formed a 50-50 joint venture that combines the legacy businesses of both companies in Angola. Azule is now the largest private operator in the country in terms of equity production. Indeed, it has around 850 employees, most of whom are Angola nationals. It operates four FPSOs in three blocks, which, along with assets operated by others, produce over 200,000 barrels per day, expected to grow by 50% a year to over 250,000 barrels per day. Azule is the second-largest equity owner in Angola LNG and the leader of the new gas consortium that is tasked with finding and developing new known associated gas supply. Indeed, exploration is a key upside for Azule, with a number of exciting oil and increasingly gas prospects in its plan. It is expected to be self-financing and has a €2.5 billion loan facility in place. In addition to funding its production growth and exploration, it will also generate an attractive dividend stream to its two shareholders. Cost synergies and operating efficiency, combined with the new growth opportunity arising from a deep operational focus aligned to an appropriate capital structure, precisely demonstrate what Eni is seeking to achieve with its satellite strategy. Now on to Energy Evolution. Refining & Marketing reported another excellent quarter. It is worth recording again that while the macro environment has been supportive, this result has again been achieved through dynamic management of energy costs and feedstock and the safe and reliable running of our refineries. I would also like to highlight the contribution from ADNOC to our adjusted net profit and cash through dividends in the quarter. Versalis has had a challenging period, reflecting the well-understood trends in the chemical industry. Live feedstock and energy costs that are more difficult to mitigate than in refining, plus weaker demand, which is both seasonal and a reflection of slowing global industrial activity. While the fourth quarter will see a rise in turnaround activity as we address maintenance delayed from earlier in the year, we are cautious in terms of Versalis. We nevertheless are comfortable in raising our downstream guidance once more. I want to briefly update on an initiative that represents another example of both our shift to a Zero Carbon model and also the use of the satellite structure to unlock value, accelerate growth, provide a deeper operational focus and help to tailor capital allocation. The Sustainable Mobility business represents Eni's commitment to making the mobility of today and tomorrow increasingly sustainable through proprietary technology and strategic agreements. The incorporation of Sustainable Mobility is gaining momentum, and we anticipate being able to talk about it in detail in early 2023. We have made some notable progress recently worth highlighting. We have taken delivery at our Gela biorefinery, the first cargo of vegetable oil produced at our agri hub in Kenya. This is the beginning of our innovative strategy of vertical integration of sustainable feedstock that does not compete with the food supply chain. Also of note, we have now taken delivery of our last cargo of palm oil in line with our commitment to be palm oil-free by 2023. Eni is a leader in green refining, having converted our Venetian Gela plants to become a biorefinery using Eni Ecofining technology. Our capacity will progressively increase during the next few years, and we recently announced the launch of a feasibility study for a new third 0.5 million ton per year plant to be built at our Livorno site. Planning to the adjusted pro forma EBITDA exceeded €0.5 billion in the 9-month 2022 period, with a strong year-on-year progression, thanks to the continued growth in renewables and the retail performance, supported by strong sales in solar, distributed generation and energy-efficient services. This was accomplished despite the current challenging market context that has created significant issues for the wider European utility space, thus confirming the value and the resilience supplied to the integrated model. Planning to remain the key strategic component of Eni's decarbonization plan and continue to execute both operationally and financially. During the quarter, we further developed the renewable utility scale business, with installed capacity at 1.8 gigawatts, set to reach over 2 gigawatts by the end of the year. Pipeline expansion continued through the partnership with Infrastrutture SpA that added new solar and wind opportunities for growth. Finally, also the Vårgrønn joint venture with HitecVision was expanded to incorporate the U.K. Dogger Bank project, creating the platform for all the offshore wind activities in Northern European markets. In distributed solar generation, we reached more than 13,000 plants in operation, mainly in Italy, where the company has the market leader position. Plenitude aims at continued expansion of this business, enlarging its reach to other European countries. In e-mobility, Plenitude was selected by the European Commission for the construction of one of the largest high-speed charging networks in Europe, along key transport corridors and major cities. In terms of operating e-mobility KPIs, installed charging points were close to 10,000 at the end of September, in line to deliver on the 12,000 target by year-end. To summarize, all Plenitude operating targets are on track and also the 2022 EBITDA guidance above €600 million is confirmed. So let's focus on a bit more detail on group financial and cash performance. Our adjusted cash flow from operations in the third quarter was €5.5 billion before the effect of working capital and unusual items. This corresponded to €16.3 billion for the 9 months. With that founded the €2.5 billion of working capital outflow mainly related to building gas inventories and managing commercial commitments to our gas customers. In the first 9 months of 2022, we have invested €5.5 billion in organic CapEx, 35% up year-on-year. On an underlying U.S. dollar basis, this is in line with our strict capital discipline and the guidance for 2022. We have funded our dividend and our share buyback program, of which we expect to complete the €2.4 billion commitment by the end of the year. At the current share price, our 2022 buyback and dividend combined yield a highly competitive yield of almost 13%. And for reference, our distribution equates to around 27% of our projected cash flow from operations at $100 per barrel. In addition, we have also made some selective inorganic investments. In the past quarter, we purchased a Tango Floating LNG to support the fast track on the LNG project. We also agreed to purchase assets in Algeria, enhancing our in-country natural gas position. Plenitude continued to develop its renewable portfolio, entering a new partnership with Infrastrutture SpA to develop wind and solar projects in Spain and Italy. Moreover, in early 2022, we contributed to the successful funding round at CFS, the MIT spin-out that we helped to establish in 2017 and targets commercially relevant net energy from Fusion with a key milestone plan from 2025. Other cash outflows include the interim payment on the Italian windfall tax, and we are scheduled to pay the remaining balance by the end of November. Also, as a result, in the first 9 months, Italian activities of the group have lost more than €1 billion. With specific reference to Eni S.p.A., Italian activities recorded €21 billion of accumulated losses since 2014. You can find additional details in the appendix to this presentation. Turning now to our updated guidance for 2022. Our new guidance for 2022 oil and gas production includes the effect of the various force majeure we have experienced this year, most notably in Nigeria, the updated guidance for Norway and planned downtime at Kashagan. Our raised guidance for GGP of €1.8 billion reflects the excellent third-quarter results, but also incorporates lower Russian volumes than previously planned and a weaker market environment as experienced in October. Our raised downstream pro forma EBIT guidance of €2.5 billion is despite a challenging outlook for chemicals. In aggregate terms, we expect to generate at least the same amount of cash flow at a lower oil price assumption than we previously made, confirming the strong performance of the company that has been a prevailing theme in 2022. We expect CapEx to be in line with the guidance of €8.3 billion we provided in the second quarter, which is, in turn, in line with our guidance provided at the beginning of the year, adjusted for foreign exchange effects. Our year-end leverage is now anticipated to be higher, mainly on the expectation that we complete the €2.4 billion buyback by year-end on account of the payment of the final installment of the windfall tax in November, and payments related to the completion of announced transactions and CapEx phasing. With that, together with Eni top management, we are now ready to answer your questions.

Operator, Operator

The first question comes from Irene Himona of Societe Generale.

Irene Himona, Analyst

My first question is on E&P. You referred Francesco to E&P cost controls. I wonder if you can talk around any specific cost reductions, either achieved or targeted? And then secondly, on Kashagan, can you please update us on where third-quarter production was and where it is now in October, please?

Francesco Gattei, CEO

Thank you, Irene. I now leave the floor to Guido Brusco for these two questions.

Guido Brusco, Executive Vice President

On cost inflation, we are observing an increase in upstream capital costs, which rose by 7.2% in the first half of 2022 and is expected to reach around 10% by the end of the year. There is clearly an ongoing trend of rising costs associated with increasing energy and commodity prices. We are managing these expenses effectively. As mentioned during our Capital Market Day, most of our contracts were secured earlier, which means we are not seeing significant changes this year or next year. We are also focusing on improving efficiencies within our company and processes, as well as applying contracting strategies to mitigate cost escalations. This includes implementing a target cost approach for EPC contracts, consolidating volumes, and expanding existing contracts where prices are more favorable. Regarding Kashagan, the latest update from the operator indicates that the full restart is currently operating at 50% capacity, which translates to approximately 200,000 barrels per day. We anticipate complete restoration of production by November.

Operator, Operator

The next question is from Massimo Bonisoli of Equita.

Massimo Bonisoli, Analyst

Good afternoon, and thank you for your presentation. I would like to have some more color on the exceptional performance of the GGP division. It is quite strong. So if you can help us in understanding that kind of performance? The second question is an update on contractual or commitment exposure on gas with industrial or utilities clients in Italy. And do you also have a number for matured receivable for gas? For example, press in Italy was reporting about €300 million only for Ilva?

Francesco Gattei, CEO

I will leave now the answer to Cristian Signoretto for the GGP. About the receivable, I can answer later.

Cristian Signoretto, Executive Vice President

Okay. So thanks for the question. So the Q3 for the overall gas and LNG business has been very strong, as you said, on the back of a very robust and volatile market. We have seen prices starting from €150 per megawatt hour getting up to €350 and then going back down to €170. But apart from that, we have also seen huge spreads around different markets between LNG and gas, between, let's say, time, so prompt delivery versus forward delivery. So there has been a very, let's say, imperfect and volatile environment. And we were able to take advantage of the flexibility that we have in our asset base, both in gas and LNG and basically go after all these arbitrages in time, geographical, or commodities arbitrages in order to, let's say, capitalize on the opportunities in the market. So I think this is the major thing that actually underpinned the performance of the Q3 result in GGP.

Francesco Gattei, CEO

About the outstanding receivable, first of all, what we see so far is, let's say, regular payment. You saw also from the performance in the quarter related to the working capital that was actually positive. We were able to recover around €500 million. Now the overall working capital clearly includes a lot of other elements and is in the range of €2.5 billion. We expect that we will close the year by recovering most of that, substantially closing the overall amount in the range of €500 million to €600 million. So that is the general trend. Clearly, you are referring to a major real estate customer. Sofianna, that there was, let's say, rescheduling in the payment that was agreed by both parties. This is one of the activities that we are monitoring for the relevance of the supply. We have a continuous dialogue to support, let's say, the capability for the commitment to have the commitment concluded. But in many cases, just to conclude this, the trend that we see so far is not alarming and confirming, let's say, a relative strength in the system related to this issue.

Operator, Operator

Next question is from Biraj Borkhataria of RBC.

Biraj Borkhataria, Analyst

The first one is on exploration. The 630 million barrels discovered this year is very significant. And this has clearly been a key strength for Eni historically and where you've created quite a lot of value. Given the current environment, I would have thought there's quite a strong business case to increase the exploration budget into 2023. So I was wondering if you could talk a little bit about what you're doing there into 2023, what's the split of frontier versus infrastructure-led and so on? And then the second question is just going back to cash again. My understanding is there are some issues in terms of the capacity of CPC and the ability to flow at full rate. So I was wondering, conceptually, if Kashagan ramps up back to full capacity, but CPC is not able to flow at full capacity itself, should we just assume Kashagan gets pro-rata down in line with the other projects in Kazakhstan? Or how does that work exactly?

Francesco Gattei, CEO

Okay. I will leave the first question to Aldo Napolitano, who is in charge of our exploration activity, and then Guido for the Kashagan and CPC.

Aldo Napolitano, Exploration Executive

Yes, about exploration. So thank you for the question. Yes, we think we have quite a good backlog of projects to be drilled also in this final part of the year and next year. So we'll continue to invest in exploration with a mix of some near-field exploration and selected opportunities that can have a high impact. While at the same time, I would say we are keeping our discipline budget-wise. We are trying to take all the opportunities that we see to have also high-impact wells to be included in our schedule. So during this final part of the year, we will drill potentially high-impact wells in Egypt, in Cyprus, and very soon, we will drill also in Congo. In the first half of next year, we have plans for drilling again in Egypt, offshore Egypt, in Mozambique, in Ivory Coast, in Congo again, in the Emirates, in Mexico and Morocco. All these are wells that potentially can bring significant results.

Francesco Gattei, CEO

Okay. Now on CPC.

Guido Brusco, Executive Vice President

Yes. On CPC, based on the information we received from the CPC operator, the work for reestablishing one of the two voids that were out of service is almost completed. So we do expect that when Kashagan will be back on stream, the evacuation capacity will be fully established.

Biraj Borkhataria, Analyst

And in November, if the capacity is not there, do all the projects get prorated down equally into the pipeline?

Guido Brusco, Executive Vice President

There are some additional export routes that we are assessing, as D&I, as I'm sure other operators are looking at to eventually cover a shortfall in capacity.

Operator, Operator

The next question is from Alessandro Pozzi of Mediobanca.

Alessandro Pozzi, Analyst

I would like to ask about the new upstream production guidance. In Q4, I anticipate a significant increase from Q3, possibly up to 1.7 million. There may be some unplanned outages returning, but there are also several startups to consider. As we look ahead to 2023, I understand it's still early for production guidance, but I recall your target of increasing production by 3% each year. Could you provide insight into whether the 1.7 million in Q4 could be sustained or even increased in 2023? Additionally, what kind of production can we expect from new developments in the upcoming months? My second question relates to Algeria. Can we get an update on the additional 6 bcm of gas projected before the end of 2023, and will this be more front-loaded or back-loaded in terms of timing throughout the year? Lastly, regarding GGP, I have noticed a significant drop in sales both quarter-on-quarter and year-on-year. What is driving this decline in GGP sales?

Francesco Gattei, CEO

Okay. I think we can have Guido provide an update on production, and then I will turn it over to Cristian Signoretto for the details on Algeria and the sales percentage.

Guido Brusco, Executive Vice President

For production, clearly, in these last two months, we will have a significant contribution from the restoration of Kashagan. And also from one of the other assets we have in Kazakhstan, Karachaganak, which is still to recover from the last turnaround. This will be the biggest ticket. Then we have the ramp-up in Coral. As you know, we have produced the first LNG in Coral and we are completing the ramp-up to achieve the first cargo that is forthcoming. This is the second contribution. The third contribution is coming from the ramp-up in Mexico, and then there are other countries where we have wells coming from production optimization, including Algeria, where we have a significant activity, of course. This will set us in, of course, a much better position for a strong beginning of 2023.

Alessandro Pozzi, Analyst

I think your kind of target is to grow by 3% over the business plan. I mean, is it going to be consistent with that growth, the 2023 production?

Guido Brusco, Executive Vice President

In 2023, of course, we will elaborate more in the Capital Market Day, but we are foreseeing an increase of the production and the CAGR, which is in excess of 3.5%. But we'll talk more on that at our forthcoming Capital Market Day.

Operator, Operator

The next question is from, I apologize for that.

Francesco Gattei, CEO

There is a second part of the question related to the sales of our gas and power division.

Cristian Signoretto, Executive Vice President

Yes, Alessandro. Regarding Algeria, the increase in supply of 6 bcm is already occurring. Since we signed the agreement in April, we've received approximately 2.5 bcm more than what was contracted prior to the crisis. This will continue through winter and beyond. It's happening, although it may not be completely uniform, but it's progressing well. Concerning the drop in sales, we need to differentiate that. The decline in gas sales in Europe is primarily due to reduced deliveries from Gazprom. Since June, we have experienced a decrease in Russian deliveries, leading to lower market sales and a need to adjust our sales strategy, including sourcing gas from outside Europe to boost our sales in Italy. There are noticeable changes in the European market, but these are a result of our need to adapt to the decline in Russian flows. In terms of LNG, the reduction is mainly due to under-deliveries from a few sources in our portfolio, which accounts for the decrease in Q3.

Alessandro Pozzi, Analyst

Okay. And just going back to Algeria, what would be the next step up in imports for Algeria?

Cristian Signoretto, Executive Vice President

The first increase will begin in October as we have raised our acquisition of the long-term contract. This marks the next step up, with more developments expected during the winter and into next spring.

Operator, Operator

The next question is from Martijn Rats of Morgan Stanley.

Martijn Rats, Analyst

A lot of relevant questions have already been asked, but I wanted to ask two additional things. The EU import embargo on Russian oil is approaching for crude in December and for products in February. I was wondering if you had any thoughts on how that might impact not only the global oil market but particularly the European markets, especially for diesel? You're probably closer to it than almost anyone, so if you could share some insights, that would be appreciated. Secondly, regarding the windfall, which has also been discussed extensively, if the second payment is in November, we're all curious about what comes after that. It might be difficult to predict, but again, you're in a better position than many of us. I was wondering about your expectations going into 2023 and if you have any sense of what the new government might do.

Francesco Gattei, CEO

I will first address the windfall and then pass it over to Giuseppe Ricci for the diesel and EU ban discussions. Regarding the windfall tax, it's clear that the revenue targets set initially have not been met, as many companies chose not to pay or appealed the tax. Some ongoing appeals are awaiting evaluations in early November, which will be the first assessment of the taxes. What's different this time is that Europe has developed a framework that provides clearer guidance for such contributions. This framework is more equitable, as it is tied to profits rather than based on VAT metrics. The assessment period is also extended to four years instead of the previous seven months and incorporates a 20% buffer based on average profits during that four-year span. This approach is more transparent, easier for the market to evaluate, and minimizes the need for adjustments or interpretations. Overall, it's a solid proposal for determining contributions, and we will monitor developments going forward. Now, I will hand it over to Giuseppe Ricci.

Giuseppe Ricci, Executive Vice President

Thank you, Francesco. As you know, Russia was the first importer in Europe of various products, primarily diesel and naphtha. Since the onset of the war, this flow has significantly decreased, leading to an increase in refining margins and the crack spread for diesel. We are observing a slight decrease in margins this summer due to the influx of some diesel from outside Europe. However, the crack spread for diesel continues to rise. We anticipate that when the ban on Russian crude and products officially begins, this could further increase and support refining margins during the winter. Consequently, we have raised our guidance, factoring in higher margins and expecting to reach €2.5 billion by the end of the year.

Operator, Operator

The next question is from Oswald Clint of Bernstein.

Oswald Clint, Analyst

Yes. Regarding the overall initiatives to reduce reliance on Russian gas, you're indicating that you're currently 50% de-risked with a target of complete de-risking by 2025. Is that still the target date, or can we expect to see de-risking happen sooner? Additionally, can you quantify the cost impact this has incurred? I understand LNG is sourced from Angola, reloaded onto smaller ships at Spanish terminals, and then made compatible for entry into Liguria, which suggests there are costs associated with replacing Russian gas. Could you elaborate on that? Also, concerning your developing relationship with ADNOC, recent discussions have mentioned global gas supplies from the Emirates. Given the size of fields like Ghasha, are you considering involvement in LNG exports from the Emirates?

Francesco Gattei, CEO

Okay. On the first question, Cristian, the second one, Guido Brusco.

Cristian Signoretto, Executive Vice President

So thanks for the question. On the substitution of Russian gas, I think, as you rightly said, we are targeting to substitute 50% of it, by this winter, then 80% next one and then 100% by 2025. When it comes to, let's say, the implications on the cost side, I mean, I'd like to take maybe a different perspective. So what's going to happen actually is this reshaping of the portfolio is going to push much faster our substitution of third-party gas with equity gas because we are basically importing more of our equity gas or equity LNG actually in Italy. This is going to actually deliver more value than we used to get from importing Russian gas just because we are going to integrate along the value chain in all the profits. Clearly, when I'm talking about the value chain, it means that it's going to span between upstream and GGP, but in the end, it's in the pockets of Eni. So I would not be worried about that. On the operation that you mentioned, this actually is accretive in terms of profit because, as you probably know, there have been huge spreads between Spanish hub and Italian hub just because Spain is full of gas capacity and LNG is traded there at a price below what is the price in Italy. That operation allowed us to use the Panigale terminal, which is probably one of the cheapest now in Europe because all the other terminals are actually asking for a higher price in order to minimize costs than actually paying more for that. Thank you.

Francesco Gattei, CEO

Guido?

Guido Brusco, Executive Vice President

Yes. As far as concerning the project of Ghasha, the gas initially produced will be devoted to the domestic market. However, the construction of this hub will enable future exploration, other discoveries done in the area to be tied in and increase the base of resources of this initial gas.

Operator, Operator

The next question is from Bertrand Hodee of Kepler Cheuvreux.

Bertrand Hodee, Analyst

Yes. Two, if I may. Can you update us on your hedging policy for upstream natural gas production? Can you remind us of the hedges you had in place for 2022 volumes or pricing? And did the GGP benefit from that at the expense of the upstream division? And do you have hedges in place for 2023 or any color you can give on this topic? And my second question would be a very quick one. Just for my curiosity, has Eni made an appeal regarding the windfall taxes that were computed by the previous Italian government? Have you made an appeal on that?

Francesco Gattei, CEO

Yes. About the windfall tax, yes, we appealed, and therefore, clearly, we are waiting. It takes time. But as I mentioned, there is this first milestone that could occur in the beginning of November related to the so-called assessment that is made by other players. In terms of hedging, first of all, there is no possibility that GGP will benefit from a hedge related to an upstream because it is not the counterpart of hedging. So GGP is not a financial institution that is, let's say, taking positions opposite to E&P. We generally speaking, in terms of E&P, we have a smaller hedging sometimes, so that is what happened even this year, but it is just to stabilize the return in certain areas in terms of, let's say, costs in order to ensure that this contributes positively. For next year, we don't have any hedge on E&P.

Bertrand Hodee, Analyst

And for curiosity also, I noticed that you've restated your Q2 natural gas price realization in upstream. It was previously reported last quarter at $9.1 per BTU. And now it is just $7.6. Any color on that? Just a technical question, and if you don't have the answer, I may reach out to Investor Relations.

Francesco Gattei, CEO

I believe we should check with Jon Rigby for the details, and we will get back to you with an answer. The Investor Relations team will also provide clarification. Regarding working capital, I want to correct that we expect a few hundred million in observations this quarter due to some upstream abandonment costs. On the other hand, the rest of the business is recovering working capital as part of a typical seasonal activity.

Operator, Operator

The next question is from Henri Patricot of UBS.

Henri Patricot, Analyst

Two questions, please. The first one, a follow-up on GGP because your full-year guidance, €1.8 billion implies negative contribution in the fourth quarter. So could you expand on what is driving that weakness in the fourth quarter? And then second question is on Cyprus, and your recent gas discovery. Can you give us a sense of the time and the next steps for your Cyprus discoveries? And perhaps you can give us a sense of how quickly you could bring that gas to market?

Francesco Gattei, CEO

Cristian, and then Guido.

Cristian Signoretto, Executive Vice President

So on the guidance for the final year, first of all, this guidance takes into consideration vis-a-vis the previous one, actually a lower flow of Russian volumes. When we confirmed the guidance in July, we were receiving around 30 million cubic meters per day. Now we are receiving something in the range of 20 million cubic meters per day. So that actually has an impact clearly on the overall results. And also that guidance for the final year also takes into consideration the fact that October is already almost closing, we have seen that the market has expressed the price environment clearly much different than what we have discussed before in Q3. Anticipating some of the headwinds coming from the force majeure, which has been called on Nigeria will affect our LNG availability. So all in all, we foresee Q4 in the range of negative 200. Clearly, as Francesco was saying during the first part of the call, if the market proves to be much more volatile and much more sensitive, clearly, we are there with our, let's say, flexibility and optionality to capture the value that will be available.

Francesco Gattei, CEO

Guido, on Cyprus?

Guido Brusco, Executive Vice President

As far as concerned, Cyprus, as you know, after the discovery well, we immediately started the appraisal, which is still ongoing. Once we have completed the assessment, we'll come up with a development concept. Of course, at the moment, we are assessing several options, which include onshore and offshore developments.

Operator, Operator

Mr. Gattei. That was the last question, sir.

Francesco Gattei, CEO

Yes. No, I take an opportunity to complete the answer to the question related to the gas realization prices. These prices were restated because now taking into account before where, let's say, excluding or including the affiliates' results, including now, they are excluded. So if there is also not a reference in the table describing and you can see the reason for this, let's say, discrepancy or changes that we introduced.

Operator, Operator

Thank you. Sir, at this time, there are no questions registered.

Francesco Gattei, CEO

Okay. Thank you for all the attendance of this conference. If you have any additional questions, please follow up with the Investor Relations team. Lastly, we expect to report our fourth quarter results in the second half of February, alongside an in-person capital market event, and more detail will be available in due course. I would like to thank you, and I wish everyone a wonderful weekend. Thank you.

Operator, Operator

Ladies and gentlemen, thank you for participating in the Eni Conference Call. You may disconnect your telephones.