Earnings Call Transcript - E Q2 2021

Operator, Operator

Good afternoon, everyone, and welcome to Eni's first half 2021 Results Conference Call, hosted by Mr. Claudio Descalzi, Chief Executive Officer. I am now handing you over to your host to begin today's conference.

Claudio Descalzi, CEO

The energy market rebound in global GDP, the growth in oil consumption, and OPEC past agreements translated into a steady increase in crude prices. The gas market is similarly recovering with summer prices at decade highs, while a highly volatile environment persists, oil and gas fundamentals remain positive. Today, we'll focus on three elements that define our investment case. First, the 2021 shareholder distribution with the dividend raised to pre-COVID levels, confirming our commitment to share part of our excess cash generation with shareholders. Second, the progress achieved on our retail and renewable businesses had a market transaction in 2022. During the quarter, we completed the merger between the two entities, and we have been able to accelerate our renewable targets. Finally, our first half results, which are among the strongest in recent years, with solid performance and strong cash flow generation. Let's start with the 2021 shareholders' remuneration for which we set a Brent price of $65 per barrel. In order to define our price deck, we took into account the actual price to date, the expected trend, market fundamentals, and potential risks, such as the emergence of new variants of COVID that could impact the market recovery. We will distribute a dividend of €0.86 per share, more than doubling the size of our 2020 dividend. In line with our policy, half of the dividend will be paid in September and the remaining in May 2022. Moreover, we will start in Q3 the buyback of €400 million that we are executing over the next 6 months. A key element of our investment case is to maximize the value of our retail and renewable businesses. During this quarter, we completed the setup of the new entity, incorporating our renewable businesses into Gas Deluca. The internal process for evaluating the best option to maximize the value of this entity is ongoing, and in the coming months, we will be able to update the market about this. This combination presents a material step in reducing Scope 3 emissions, providing a carbon-neutral product for our customers. This new entity represents a unique value proposition. It is an integrated and synergistic platform across the green energy value chain from generation to supply. It benefits from a global presence and well-established businesses both in terms of size and portfolio diversification. Its solid growth profile is supported by a reliable customer base and a strong organic pipeline of renewable projects, which are already complemented by a selective asset acquisition strategy. Its cash flow is robust and visible, made stronger by the natural hedge between generation and retail sales. It will be financially independent with its own investment-grade rating, drawing full benefits from lower interest rates and higher leverage flexibility. Digital solutions will be a further lever to enhance our green offer to our large customer base. Going into more detail on our renewables, we are announcing an increase in our short- and medium-term targets. In the period 2023-2025, we are enhancing our installed capacity target by 1 gigawatt, accelerating our plan. Since the beginning of this year, we have defined, expanded, and derisked our pipeline of renewable projects. This now stands at 9 gigawatts, of which installed and in construction capacity, with an additional pipeline of about 7 gigawatts related to assets at different stages of maturity, of which more than 3 gigawatts are secured. Almost 80% of our pipeline is in Italy, Spain, and France, integrated with our retail presence. The acceleration of our growth in the coming years is the first step toward our goal of more than 15 gigawatts of stored capacity in 2030. Thanks to the acceleration of our renewable growth, 2024 EBITDA will now be over €1 billion, a 10% increase versus the previous guidance and almost double the 2021 levels. Our renewables business will benefit from a large captive customer base, a stabilizing factor for results as well as contract optionality. The renewable business will be at EBITDA breakeven this year and will deliver more than €300 million EBITDA in 2024. Let's now move to our first half results, one of the best in the last 10 years. EBIT of €3.4 billion is more than three times the same period in 2020, driven by the upstream return in renewables and chemicals, where we score a record performance. In Upstream, production at 1.65 million barrels per day is in line with guidance. Exploration discovered more than 300 million barrels, almost two-thirds of our yearly target. Main successes were in Norway, Angola, Indonesia, and Ghana, and we are progressing the business combination in Angola with BP. This new company will represent a full-year autonomous operating and financial vehicle. It will allow further growth in the country while capturing synergies between two of the largest local operators. We are aiming to replicate this success in a country where we foresee major exploration and development potential. Regarding energy evolution, Versal, our chemical company, fully captured the positive market upside. Retail and renewable are delivering steady growth. In the oil downstream, marketing results were robust, driven by the gradual recovery in demand, while refining was impacted by negative margins. Our net profit at around €1.2 billion has recovered to pre-COVID levels, driven by €0.9 billion in the second quarter and a tax rate of 55% in the semester. Free cash flow generation in the first half was strong, with cash flow from operations before working capital at almost €4.8 billion, up 41% versus the first half of 2020, and CapEx at €2.0 billion with no change versus last year. At the end of the semester, our balance sheet is stronger and the leverage pre-IFRS has decreased to 25%. Turning to natural resources, upstream EBIT in the first half was over €3.2 billion, an increase of €3 billion compared to 2020, thanks to lower costs and improved scenario despite lower production. Also, cash flow from operations was robust at €4.6 billion, almost double versus 2020. We expect production to recover in the second half of the year, confirming our 2021 guidance of around 1.7 million barrels per day. In the third quarter, the expectation is at $1.68 million per day. In the second half, production increases were sustained by recovery from planned turnaround and ramp-up in Indonesia, along with contributions from fast-tracked exploration. In this respect, we confirm that a quicker field in Angola discovered in March, close to our existing SCOs in Block 15, will be connected to production in these days, just four months after the discovery. Let me spend some more words also on Egypt, which is improving with the success of our integrated gas model. In the first half of the year, the net plan successfully loaded 17 LNG cargoes, which contributed to our asset gas production in Egypt, reaching a record level of nearly 4 bcf per day. Nearly 30 additional cargoes are expected in the second half of the year. Finally, GDP, our global gas and energy portfolio business, was at EBIT breakeven in the first half. For the full year, we confirm EBIT breakeven while free cash flow will be positive at €0.2 billion. Moving to Energy Evolution in the first half, Gasloc and renewable EBITDA was at around €350 million. Retail EBITDA contribution in the period was 40% higher than last year, thanks to high-value services that contributed 15% of the EBITDA and a 3% growth in the customer base compared to the end of 2020, resulting from organic development and the closing of Aldo Energy, an energy acquisition in Spain. Retail renewable is expected to reach an EBITDA of more than €600 million in 2021, better than our original guidance. In R&M, in line with the improving trend on a quarterly basis, we expect a positive second half result, driven by recovery in demand, biorefining margin improvement, and optimization initiatives. Vercise performance was mainly driven by a recovery in demand coupled with a shortage in supplies. Margin for Politan and styrene rose to record levels. We were able to capture the positive scenario, thanks to the higher availability of our plants. In the second half, we expect a rebalancing across the industry supply-demand that will drive a dip in prices. However, we expect margins to remain higher than the corresponding period of last year. In 2021, the overall EBITDA adjusted pro forma for downstream is confirmed in the range of €400 million, mainly related to chemicals. Turning now to our cash generation. Free cash flow in the first half was stronger at €1.9 billion. For the full year, assuming a Brent price of $65 per barrel, and slightly negative refining margin, free cash flow generation is expected at €4 billion, growing to €5 billion at $70 per barrel, thanks to production growth and capital discipline. Our CapEx is confirmed at €6 billion. Our 2021 performance will allow us to maintain leverage below 30%. In conclusion, we reaffirm our commitment to prioritize our shareholders with an increased distribution, our progress in maximizing value in energy transition, and our first half results and full year guidance for a strong 2021. Now with any top management, we are ready to answer your questions. Thank you.

Operator, Operator

The first question is from an unidentified speaker.

Unidentified Analyst, Analyst

Congratulations on these very strong results. I will ask two questions, please. First one, on your tax rate, which came at a relatively low level, even if I compare it with the previous year. So, has it been temporarily impacted by some one-offs, which led to a particularly low tax rate this quarter, or should we consider that, with the development of some projects that you started recently and in a $70 Brent environment, new upstream tax rates should stay below 50%, let's say, between 40% and 50%? The second question is on your realized gas price, which slightly improved quarter-on-quarter, but remains below $5 per unit. So I understand that for some of your gas production, your selling price is linked to the high price with a delay. Should we then expect that your realized gas price will strongly increase in the coming quarters, thanks not only to the increase in the spot gas price, but also to the increase in the oil price that we have seen in the last months, which is going to impact your gas price during the second half of the year? And if I may, one last small question: your refining margin indicator so it remained negative in the second quarter. Can you tell us about the current level, please? Are you benefiting from the increase in margin that some of your peers have been highlighting since the beginning of July?

Claudio Descalzi, CEO

Okay. Thank you. Now Francesco, our CFO, will address the first two questions, and the last one regarding refining margin will be answered by [indiscernible].

Francesco Gattei, CFO

Yes. Regarding the tax rate, this year has shown a more normalized rate. Compared to last year, we had a portfolio mix that was somewhat unbalanced in performance. Currently, all parts of our portfolio, both upstream and downstream, are more balanced. In upstream areas with lower tax rates, certain countries like the UK, US, and Italy may see results that reduce the average tax rate. We expect that in a $65 scenario, we will be around 55%, which we have achieved so far and aligns with the 50% guidance we provided at the start of the year for a $60 scenario. As oil prices rise, there is a rebalancing among the components. Additionally, the upstream tax rate is affected by depreciation and contributions from various countries. It's also worth noting that part of our gas volumes is tied to oil-linked pricing. Typically, our long-term delay is about nine months, translating to three quarters of results, so gas prices will follow trends with some delay. The spot price has a 20% impact, while the oil-linked pricing accounts for 25%. The remaining 55% comes from volumes sold at fixed prices or contracts that have less influence. Now I will hand over to the next speaker for the final question.

Unidentified Company Representative, Company Representative

Thank you, Francesco. Regarding the refining margin, we are seeing in July a slight improvement in the margin, but it still remains very weak. We expect a further improvement in the second half, but depending on the evolution of COVID, because the different increases in COVID measures could affect the market growth. Our sensitivity analysis indicates that if margins continue to be negative in the second half across the overall energy evolution, we are still able to maintain our budget.

Operator, Operator

The next question is from Arena Simona.

Unidentified Analyst, Analyst

My first question concerns the €934 million special item in the second quarter. It appears to be related to Refining & Chemicals. I wonder if you can say what it relates to? And then secondly, Claudio, as you mentioned you're expanding the renewables portfolio and upgrading the target, you recently added capacity in Spain and France. Can you give us some indication, please, either of the multiples you paid to enter those projects or indeed some sense of the economics you would anticipate such as equity IRR, for example?

Claudio Descalzi, CEO

Francesco will answer the first question and then I will cover the second one.

Francesco Gattei, CFO

Yes, Carine. You have seen it’s correct that we have this write-off, which is completely related to the refining segment. We have updated our evaluation based on the new scenario and the lower margins and very weak margins this year and in the coming years. Therefore, we have substantially written off entirely our downstream, our refining refineries. This €900 million is related to that.

Unidentified Analyst, Analyst

So for the expansion of renewables, we are accelerating our renewable acquisition and also organic growth, mainly in the last 12 months. We’re talking about inorganic growth. We have participated in tenders and won, or we acquired directly, and we can say that in four to five months, we achieved what we promised to achieve in four years. We accelerated drastically also the review of the consolidation of the new companies, the new business combination between renewables. That's the reason we wanted to progress faster. When the company will be there, it will be capable of having debt and to invest in renewables to grow further without impacting our balance sheet and leverage. Talking about what we paid, it’s a mix of capacity in production under construction and the future pipeline. As you know, we have about 9 gigawatts now, an additional 4 or 3 gigawatts more than we stated if I'm not wrong, what we said in February. We have 2 gigawatts this year, so instead of 1 gig by the end of 2021, we have 2 gigawatts in production and in construction as well. We have additional 3 gigawatts that are secure, meaning they are in development. The rest can be considered in exploration or reserves, which means that the permits are easy to obtain because at least 2 of them are organic. So the land is in Italy, and it’s quite secure. The multiples for our acquisitions in the new capacities are in the range between 9% and 10%, more towards 9 than 10, which is very good. To acquire 600 megawatts in production, we paid about €660 million. So that is roughly what we invested. Now we will continue working on the new company to grow faster and be more efficient and provide more value to all our company.

Operator, Operator

The next question is from Biraj Borkhataria of RBC.

Biraj Borkhataria, Analyst

The first one is on the gas business. You mentioned that contract renegotiations were a contributor to your results in the second quarter. Can you quantify that? And also let us know if you're expecting any further renegotiations to be agreed later this year? The second question is just on your CapEx program in the upstream. Typically, you had a higher weighting than some of your peers towards short-cycle tieback led projects. Given where commodity prices are, are you looking to mobilize any additional upstream CapEx in the second half of this year or in 2022? I’m just wondering how much incremental CapEx you could put to work on these types of projects.

Claudio Descalzi, CEO

So the first answer about contract renegotiations will be given by Christian and the second one by Alessandro Puliti.

Francesco Gattei, CFO

As we said three months ago, we started a round of renegotiations linked to the fact that the spread between PS and TTF in Italy has substantially deteriorated. What we achieved in the second quarter was essentially a first, let's say, round of renegotiation of some contracts. There are still some ongoing, which we expect to settle in the course of this year to rebalance our portfolio towards the new reality of the Italian market.

Claudio Descalzi, CEO

Regarding CapEx upstream, we do not foresee any increase. We will continue with our policy to sustain production through production optimization activity and near-field exploration tie-backs, as you mentioned, and this will not require any extra CapEx for what we have already stated.

Operator, Operator

The next question is from Martin Leibowitz of Morgan Stanley.

Unidentified Analyst, Analyst

I have two questions, if I may. First, I wanted to ask about the reference oil price of $65 a barrel that you mentioned. On your website, there is a schedule that goes to an unspecified range. If you set it at the top end of the range, it would simply be the highest point, but it's actually $1 lower. This may seem a bit picky, and I don't want to come off as rude, but the dividend is crucial for the Eni share price. We spent time trying to forecast the dividend based on the schedule you provided, which seems to hinge on oil price projections, from which the dividend would be derived. However, it now appears you are factoring in safety margins compared to consensus forecasts or the forward curve for oil prices. Currently, the gap between the forward curve or consensus forecast and the $65 you stated represents a significant safety margin. I understand this is a new schedule, and we are trying to navigate through it, but this situation would shift a bit if you start to indicate large safety margins or discounts relative to prevailing market oil price expectations when determining your dividend policy. Could you elaborate on why you referenced $65 instead of just using the top end of the schedule, and what levels of safety margins you are considering for this reference oil price going forward? The second question I wanted to ask concerns refining and the EU Fit for 55 package. In this package, refining is regarded somewhat favorably. However, as things progress, there may well be decarbonization targets for refining at the Scope 1 or 2 level. This raises concerns about the long-term viability of the business, which has already faced challenges for some time. Considering the Fit for 55 decarbonization aspects and potential increases in capital expenditure, what do you view as the long-term prospects for the refineries you still own?

Claudio Descalzi, CEO

Okay. Thank you, Martin. I'll try to answer both questions, and my colleague can intervene if there are any additional points. First of all, your point about $65 per barrel has clearly been discussed among us and is a critical point because, based on that, we formulate our dividend and also the buyback. So why is this? It’s not really a margin for us; we calculated based on the current price and our evaluation considering forward curves, our view of where we are in our countries and our business, along with the uncertainties we still face. We are not in a clear situation; we still have uncertainties. We don’t know exactly what will happen in September or October and regarding the potential impacts of a fourth wave COVID variant. So, the $65 reference is in line with our evaluations, and we have reached an agreement because we want to recognize to our shareholders, after the challenges of 2020, our clear focus on returning value. The buyback of €400 million will happen over 6 months, not in 12 or 18 months. We are accelerating and starting immediately with the €300 million. These are the reasons for linking the price expectations with shareholder priorities. Regarding refining, clearly, refining in Europe is under immense pressure and has been fragile for some time. COVID has added additional fragility, and the negative margins we have observed over the last three to four quarters are a result of not just demand but also higher costs. In Europe, we face higher taxation for CO2; carbon pricing has more than doubled in the last six months. We are close to €50 per ton, and forecasts indicate that it will rise further. To mitigate this, we are closing two refineries and resizing at least three of our other refineries to reduce capacity and costs, which is the first step.

Operator, Operator

The next question is from Massimo Bonisoli of Equita.

Massimo Bonisoli, Analyst

Three questions. One on retail renewables. Your guidance of €350 million EBIT implies only €40 million in the second half of 2021 versus almost €200 million in the second half last year. Can you shed some light on this? The second is on chemicals. The average plant utilization rate was only 65% in the second quarter. Considering the very good margins, why was the utilization so low? Should we expect some operating leverage in the second half? An indication of margins in petrochemicals in July would also be helpful. The third question is on shareholder remuneration. Given your current share price, would you consider possibly next year a different mix in shareholder remuneration, more buyback than dividend?

Claudio Descalzi, CEO

So, let me start by answering the third question about EBITDA. For retail, as you currently mentioned, in the first semester, we had a very strong semester with almost €80 million more than last year, and we are now at €262 million EBIT. If we look at the forecast, we are still better than last year, but reducing the gap, and we forecast €382 million. Part of this is seasonality; we anticipated some of the margins that we were expecting during the year. Some margins anticipated in the first half are also reduced by strong contributions from extra commodities that we experienced in the first half. We are aware of uncertainties regarding future legislation, but overall, the 2021 forecast is still €20 million better than last year. Adrian, could you answer the chemicals question, please?

Unidentified Company Representative, Company Representative

Sure. In the second quarter, we were managing some plant turnarounds, particularly in Brindisi, where we have our largest cracking and polyethylene businesses, which were supposed to occur between the end of Q1 and the beginning of Q2, to capture the highest margins observed at the end of Q1 and April. Unfortunately, we had to postpone until May, so the asset utilization is a result of the backlog from the planned turns. We also had scheduled turnarounds in Mantova, which is a big site. What you mentioned is still reflective of this situation. In the second half of this year, we have seen incredible margins owing to product shortages, especially in polyethylene, setting record levels. In June, margin developments began declining, influenced by increased raw material costs and stabilization of supply, particularly from increased imports from June onwards. To specifically address margins in July, we witnessed a further reduction. However, we expect these margins to stabilize in the third quarter, and overall margins will remain in the second half higher than the same period from last year.

Claudio Descalzi, CEO

Regarding your last question, we already have a dividend policy that comprises a floor and a variable part based on free cash flow and buyback. We are addressing dividends alongside the stock price. It's not the time to engage in discussions about a new policy. Any updates would be communicated in February or March when we perform our strategy presentation, but at the moment, our established policy remains in place.

Operator, Operator

The next question is from indiscernible.

Unidentified Analyst, Analyst

Two questions. Firstly, I was intrigued by your comment about Gasloc, which will have its own independent credit rating. One challenge with your own credit rating is that the rating agencies have insisted on keeping it closely aligned with the Italian sovereign. I would like to understand how you avoid that problem with Gasloc given that it only represents less than 10% of your business. Secondly, I wonder if you could update us on the plans you talked about regarding the replication of the Via Energy model in other regions like Angola and the Far East?

Claudio Descalzi, CEO

Yes, Francis will answer the first question. Clearly, about the new entity in renewables, we will start with the evaluation from credit agencies. It will benefit from the combination of stable and growing cash flows coming from retail along with the high-growth potential of renewables. What you mentioned about the requirements set by credit agencies is unavoidable; however, we expect the company will have an investment-grade rating. So I don't think this will be an issue for raising a significant amount of capital.

Unidentified Company Representative, Company Representative

Regarding our efforts to replicate the Via Energy model, I can confirm that we are making progress in Angola with ongoing activities. We are also actively looking for other opportunities worldwide and believe that these could bring operational and capital allocation synergies, which would be beneficial for our upstream business because of the competitive global landscape we are in.

Operator, Operator

The next question is from Roberto Ranieri of Intesa Sanpaolo.

Unidentified Analyst, Analyst

Just going back to the renewable business. I have a specific question about regulation in Spain. You mentioned Spain and France as important areas for your growth in capacity development. If you can provide an update on the regulatory authorities related to CO2 emissions trading and the discussions from the Spanish government. Additionally, regarding your renewable business after the offshore wind acquisition, are you still committed to investing in offshore wind? Do you believe that the offshore business is economically viable, given that some traditional operators are exiting this segment?

Claudio Descalzi, CEO

Alberto will address the questions related to regulation and offshore wind.

Alberto Chiarini, Company Representative

Concerning the regulatory risk in Spain, I won’t delve into details, but I will say that there is a strong commitment from the government to simplify the authorization processes for renewable projects through the simplification decree. At the moment, it's a bit early to evaluate its exact impact, but it will likely be positive, though we still need to see how quickly it will take effect. Regarding the offshore wind sector, we will continue to invest. Dogger Bank for us was a pivotal entry point into this technology, and we plan on building on our experiences there. We're currently participating in initiatives related to offshore wind in Scotland and firmly believe that a mix of photovoltaic, onshore wind, and offshore wind will form the foundation of our future strategy.

Claudio Descalzi, CEO

Andrea, can you answer all the questions related to chemicals?

Andrea Gemma, Company Representative

As stated earlier, the €400 million EBITDA expected for 2021 is primarily driven by the chemical sector. The split would be roughly 75% for chemicals and 25% for renewables. In terms of guidance or expectations for the upstream business in addition to polyethylene and aromatics, we have clearly built participation in the styrenics market and elastomers, although these segments are smaller than the polyester business we are primarily involved in. Margins in elastomers and ceramics have remained stable for the remainder of 2021, primarily driven by recovery in demand in construction and durable goods, especially spicy automotive applications for elastomers. We are also focusing on specialized products for automotive sectors as the driver for this industry changes. About downstream, we are carefully monitoring our ability to capture higher margins in chemicals. Our recent acquisition allows us to go downstream and focus on compounding and molding relevant to the polyolefin business, which opens opportunities in elastomers as well. Capturing higher margins in the chemical sector requires specialization and a commitment to offering tailored solutions to customers.

Operator, Operator

The next question is from Giacomo Romeo of Jefferies.

Unidentified Analyst, Analyst

The first one is regarding your retail and renewable business. Looking at the incremental details you provided, particularly regarding the customer growth expected from €10 million to €15 million. You are currently generating good margins on this business, and I would like to understand your considerations on the potential effects on margins driven by the liberalization of the market in Italy and whether this could lead to margin erosion. The second question is regarding your thoughts on the 'Fit for 55' legislation surrounding biofuels. Specifically, I am interested in your perspectives on biofuels targets, particularly in sustainable aviation. Some of your peers have expressed concerns regarding the cap on animal fat feedstock. I'd like to hear your view on that as well.

Alberto Chiarini, Company Representative

Regarding margins, you are correct; liberalization is an ongoing process in Italy, albeit rather slow. Ultimately, this will lead to decreased margins compared to what they are currently. However, we have this clearly incorporated into our four-year plan. We anticipate growth in our results because we are also focusing on expanding our high-value services. Currently, we provide around 20% of our EBIT through additional services, and we believe that this will be crucial for replacing any reduced margins per customer in the future. Regarding the 'Fit for 55' legislation, the increased ambition of Europe in terms of transition is a strong opportunity for biofuels, as it's impossible to reach these targets purely through electrification. This implies that future biofuels targets will increase for transportation, aviation, and marine transport. This gives us a competitive edge in technology and production. We are planning to convert part of our JELA biorefinery to produce biojet fuel at a rate of 150 kilotons per year before 2024, and we're actively pursuing advancements in this area. On the matter of animal fat, we have no particular concerns as our strategy is to diversify feedstock. We are also increasing the range of feedstocks we supply in the market through internal production and vertical integration.

Claudio Descalzi, CEO

Just to add something because it's important to note that we are diversifying our feedstock; our technology allows us to process more than 150 types of feedstock. This gives us flexibility and reduces competition with food production. By 2023, we will continue with a primary feedstock strategy but will also explore various types to ensure zero competition with food and positively impact agriculture in Italy and other countries where we operate.

Operator, Operator

It's important to note that we are diversifying our feedstock; our technology allows us to process more than 150 types of feedstock. This gives us flexibility and reduces competition with food production. By 2023, we will continue with a primary feedstock strategy but will also explore various types to ensure zero competition with food and positively impact agriculture in Italy and other countries where we operate.

Unidentified Analyst, Analyst

So two questions. Firstly, we have spoken about tax; I thought I’d revisit that. Can you explain or perhaps shed light on whether there’s any value or opportunity now that you’re beginning to identify earning streams around biorefining and renewables and circular elements of the chemicals?

Claudio Descalzi, CEO

Hello?

Operator, Operator

The question is from an unidentified source.

Unidentified Analyst, Analyst

I have two. The first one is on renewables, especially in Italy. Do you see progress in the permitting process? The process was very slow due to administrative constraints. Has the Italian government produced a simplified procedure to accelerate renewable permitting? This is my first question. Secondly, I have a bit of a housekeeping question on Q2 upstream performance. In the press release, it is noted that clean EBIT benefited from retroactive contractual revisions. Could you quantify the positive impact on Q2 upstream EBIT from those network rental revisions and provide some color on that?

Claudio Descalzi, CEO

Alberto will respond regarding renewable permitting and Francesco regarding the clean EBIT.

Alberto Chiarini, Company Representative

Yes. There is indeed a strong commitment from the government to simplify the procedures for the authorization of renewable projects, reflected in the so-called simplification decree. At the moment, it’s still a little early to assess its full impact, though we expect that it will be positive. However, it’s hard to predict how quickly this process will change, even if it becomes centralized.

Francesco Gattei, CFO

Regarding the one-off effect on E&P in the quarter, it is just above €100 million and is mainly related to certain renegotiations in countries in Africa that have been accounting for previous quarters, creating this cumulative effect. There are also additional variations or improvements related to infrastructure costs and funds, which explain the one-off.

Operator, Operator

Mr. Claudio, there are no more questions registered at this time.

Claudio Descalzi, CEO

Okay. Thank you very much. Thank you for listening to us. For any other questions in the future, we are available anytime. Thank you. Have a good day.

Unidentified Company Representative, Company Representative

Thank you. Bye-bye.

Operator, Operator

Ladies and gentlemen, thank you for joining the conference. You may disconnect your telephone.