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Eni S.p.A (NYSE:E)
Q2 2020 Earnings Call
Jul 30, 2020, 3:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Eni's 2020 Strategy Update and First Half Results Conference Call and Q&A session hosted by Mr. Claudio Descalzi, Eni's CEO and top management. [Operator Instructions]

I am now handing you over to your host to begin today's conference call. Thank you.

Claudio Descalzi -- Chief Executive Officer

Good morning, and welcome to Eni's strategy update and first half results. In February, we communicated a strategic road map toward 2050 that will take our company through the energy transition. In line with this strategy, in June, we announced the new organization, creating two new integrated business groups. Natural resources we'll develop the upstream oil and gas portfolio sustainably, promoting energy efficiency and carbon capture. The business group will be integrated along the gas value chain from exploration to development to wholesale via pipeline or LNG, leveraging our technical and commercial competencies.

In addition, this business will lead CCUS, Forestry, sustainability, environmental. Remediation, key activities for the sustainable delivery of the carbonized product. The second business group Energy Evolution is dedicated to supporting the evolution of the company's power generation, product transformation and marketing from fossil to bio, blue and green. Thanks to the business group's coordination, the company will be able to develop these activities in integrated way, both geographically and in terms of business lines. Maximizing results in terms of product development, customer service and profitability. Alongside corporate functions, the business growth will be supported by a new technology R&D and digital function. Our organization will deliver a better balanced portfolio, reducing the exposure to volatility of hydrocarbon prices to become a leader in the decarbonization process.

Turning to our long term strategy. This remains unchanged and our transformation is irreversible. The recent event related to COVID-19 pandemic, emphasized the need to accelerate along this path to deliver a more sustainable Eni. These draw the capital allocation for the four-year plan and we have delivered a significant reduction in our carbon footprint, where our target imply also that Eni will be scoped one, two, three net emission neutral in Europe by 2050.

Let's now turn to the action we have taken on capex enclosed for 2020, 2021. We reacted to the pandemic immediately. In just one month, we declared our first set of actions and have conducted a deep analysis to further cut our costs. In the mean time we have also reviewed our scenario assuming $40 per barrel Brent this year growing to $60 per barrel Brent in 2023. The result is that, today we are announcing our target, both for capex reduction and close optimization.

Overall in 2020 and 2021, we aim at an average capex cut of over 30% and EUR2.8 billion of overall close optimization of which 25% to 30% are structural. Together, this represent almost EUR eight billion of reductions compared to the original plan. In our group's capex plan, rigorous capital discipline is key. With the expectation of Brent at $40 per barrel in 2020, we will keep capex at just over EUR five billion. In line with our gradually rising expectations for Brent, our capex will flexibly increase from 2021 to reach around EUR eight billion in 2022, comparable to our original pre COVID plan.

The mix inside the capex plan will change, accelerating the energy transition. The new plan versus the original one envisages in upstream and almost EUR six billion reduction. By contrast in the green businesses, capex will grow by EUR0.8 billion, mainly dedicated to biorefining, renewables and expansion in the Retail segment. Overall, in the planned green capex will account for 17% of the total versus 12% in the original plan, reaching 26% in 2023 versus 20% in the original plan. The wait of green investment will become increasingly more important as we move toward the balancing of our portfolio.

In upstream, production in 2020 is confirmed at around 1.71 million to 1.76 million barrel of oil equivalent per day after the OPEC cut. The 2019-2023 average growth rate will be in the range of 2%, driven in 2023 by start-ups and ramp-ups for around 400,000 barrel per day and production optimization for over 200,000 per day. If this scenario proves to be stronger than expected in 2021, we will have the flexibility to reactivate some production optimization actions. Growth in medium to long term is a function of the upstream capex profile. In terms of project development, the new 2020-2023 capex plan includes a number of revisions, impacting especially the first two years as we postpone a number of FIDs.

Exploration will target two billion barrels of new discoveries in the period at a leading cost of $1.6 per barrel. In exploration, no activity has been canceled, but we have rephased 50% of the investment plan for 2020. 2021, we'll see the drilling of parts of the wells we postponed this year. Turning to the mid-downstream, we confirm the development of our decarbonized businesses, further accelerated by the increase in green capex mentioned before, mainly dedicated to biorefining, renewables and retail expansion. At the next 2021 strategy, we will give further details on the specific upgraded targets within this green businesses. Turning now to our shareholders' remuneration policy.

In light of the unprecedented change market context, characterized by an elevated volatility and the depressed level of prices expected in the next two years and only after the radical revision of all our group's cost and capex, as just explained, Eni has decided to revise its shareholder remuneration policy, to give clear visibility on the future dividend and buyback program. The new remuneration policies is valid for a Brent price of $45 per barrel or more. The policy includes an annual dividend that has a floor value of EUR0.36 in annual Brent scenario of at least $45 per barrel and an additional variable component that is dependent of on the value of Brent above $45.

And the buyback program of EUR400 million for annual Brent scenario between $61 and $65 or EUR800 million for annual Brent scenario above $65. In more detail, the dividend floor value of EUR0.36 will grow as the company realizes its strategic plan, and this will be evaluated each year. The variable component of the dividend is determined by the value of our Brent forecast each year. This is calculated as a growing percentage between 30% to 45% of the incremental free cash flow generated by a scenario between $45 and $60. The fix free cash flow sensitivity incorporated in the remuneration policy is EUR900 million for every $5 change in Brent.

Notwithstanding our Brent scenario at $40 this year, our dividend proposal for 2020 is EUR0.36 per share, 1/3 or EUR0.12 will be paid at the interim in September 2020, with the remaining 2/3 or EUR0.24 will be paid in May 2021. After 2020, if the Brent scenario assumption is below $45, and it will evaluate the floor dividend considering the expected duration and the depth of the downturn. From 2021, the floor dividend will be paid 50% in the interim payment in September and 50% in the final payment the following May. While the variable component will be paid entirely with the interim payment.

The variable component will be paid for the due amount apply in the policy, if they envisage yearly Brent price in July each year is above $45 regardless of the progressive growth now assumed in our scenario. To be even more clear, in the case next year of Brent being $60 per barrel, we will pay the entire variable component of EUR0.34 per share. Applying the current Brent scenario adopted by Eni and assuming no change in the floor dividend, the new remuneration policy will be delivered cash dividend of EUR0.55, EUR0.47, EUR0.56 and EUR0.70 respectively, in the year 2020 to 2023. Turning now to our first half result. In the context of unprecedented discontinuities in the hydrocarbon scenario due to the COVID-19, Eni has performed well.

Our action has focused on two principles. Firstly, we acted strongly to protect the health of our people, contractors, in-house communities. And secondly, we continue to implement our strategy. In terms of our businesses, in the first half, we discovered almost 200 million-barrel of resources in Angola, Mexico and the UAE. The recent Egyptian discovery and appraisal, in Vietnam will further improve this figure. Upstream production was 1.74 million barrel per day minus 5% year-on-year. The reduction was mainly driven by COVID-19 impact and OPEC Plus cuts. Portfolio, price effect and other positive elements were offset by lower gas demand, in particular, in Egypt and the effect of contractual trigger and force majeure in Libya. Mid-downstream performance proved to be robust.

Notwithstanding the COVID-19 impact, both Gas & Power and R&M improved year-on-year, thanks to asset optimization, retail and marketing standardizations and the growing contribution of low-carbon product. The Gas & Power result was driven by the wholesale business and portfolio optimization, which counterbalance the weakness in LNG demand related to COVID. Retail also performed well even in the context of lower demand and higher default risk. The R&M result was linked to the optimization of our industrial setup and the growth of biofuel, thanks to the Gela ramp up, while marketing performance was impacted by lockdown.

In Renewables, we started the Badamsha wind firm in Kazakhstan, expanded in the U.S. and made our first steps in the wind generation in Italy. Installed capacity at the end of the first semester was about 250 megawatts. Versalis experienced lower demand and assuming lower margins due to the pandemic. Turning to financials. The company remained free cash positive with adjusted cash flow in excess of capital expenditure by EUR0.4 billion. In terms of economic result, upstream EBIT in the first half was EUR0.2 billion down by EUR4.2 billion compared to 2019. This reduction is almost entirely explained by the scenario accounting for EUR3.6 billion, while EUR0.5 billion is due to the volume mix effect.

Production in 2020 is confirmed at around 1.71 million to 1.76 million barrel of oil equivalent per day. After the OPEC cuts that account for around 40,000 barrel per day, in line with previous guidance. In the second half of this year, we will continue the drilling of near-field exploration wells, mainly in Egypt and Norway. In total we expect to discover over 300 million barrel of resources at less than $2 per barrel this year.

Moving to mid-downstream. The overall result have been very strong, improving by almost 70% compared to last year, more than doubling, excluding scenario and COVID impact. In particular, our Gas & Power EBIT was robust at EUR650 million, showing the best first half result over the last 11 years, up about 70% year-on-year, driven, mainly by the GLP business unit with result of EUR466 million, more than double versus last year's. Thanks to contract optimization, which benefited from high price volatility and a higher contribution for the power business. This strong performance was only partially offset by the lower contribution of LNG business.

In retail, Eni gas e luce delivered a result over EUR180 million, plus 10% in the period, driven by the growth of the customer base and the higher contribution from noncommodity activities, which more than offset COVID and mild climate that impacted for more than EUR60 million. Overall, the impact of the scenario and COVID on Gas & Power was around EUR100 million in the period. The Refining & Marketing result was EUR174 million, almost 2/3 higher than last year, despite the challenging scenario, both in term of margin and lower demand. In particular, refining was at breakeven due to the positive contribution of around EUR50 million from the bio business. Thanks to the Gela plant ramp up.

And the resilient marketing result that helped counterbalance the demand reduction related to the lockdown measures. Finally, the Versalis result was impacted by the plastic demand, in particular, in the automotive sector by lower plant availability. Versalis first half result was negative for EUR130 million. Overall, we expect for 2020 in EBIT contribution of around EUR800 million from these three businesses together, 1/3 higher than the previous guidance. Gas & Power guidance increases by over 60%, thanks to the strong performance in the first half. The second half result is expected to be broadly neutral, given a positive retail contribution, where noncommodity business will reach 20% of EBIT.

This will be offset by a weaker result from GLP business, impacted by reduced optimization opportunity as these were realized in the first half. R&M's guidance will improve to around EUR350 million, in particular, thanks to the resilient result from the biorefineries. While Versalis results will be impacted negatively by the depressed scenario for an additional EUR100 million. Turning now to the cash position. In the first half, the adjusted cash flow from operation before working capital was at EUR3.3 billion, exceeding our capex. Excluding scenario on COVID, our cash flow would have improved year-on-year by EUR0.8 billion.

Looking at 2020, with new scenario assumptions, we expect a cash flow from operation before working capital in the range of EUR6.5 billion, in line with our previous guidance. This cash flow generation will more than cover our 2020 capex. We will maintain a sizable reserves on liquidity, which are currently around EUR18 billion, almost four times our short-term debt. Our balance sheet remains robust with a leverage up 37% at the end of June. To conclude, this year, we have set out a clear strategic framework for the new Eni to maximize value through the energy transition toward 2050.

We have a new organizational framework and a motivated and highly skilled team that will enable us to deliver this strategy, with natural resources focused on selective and sustainable production and energy evolution transforming its product needs to sell more decarbonized products to more customers. And we now have a new financial framework that is resilient in a weaker environment and progressive as we execute our strategy and as Brent recovers. Together, the strategic, organizational and financial framework set out this year will create more sustainable value for our company and all our stakeholders.

Thank you very much. And now we are ready to answer your questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Oswald Clint of Bernstein. Please go ahead. sir.

Oswald Clint -- Bernstein -- Analyst

Hi, good morning. Thank you. Yes. Just two questions, please. First, I mean, I guess when you think about dividends, I imagine you're looking at buckets like the macro environment, your own liquidity and underlying business performance, so perhaps, those three areas. So I just wondered, in terms of the change in the dividend today, is it was it one of those in particular that's forced this action or all three of them that's caused this change in the policy? And then secondly, you mentioned the variable component, you'll decide that in July, if oil is above $45. But in terms of the floor dividend and the progressive nature of that, when do you decide on the shift in the EUR0.36, please?

Claudio Descalzi -- Chief Executive Officer

Thank you. I think that as you mentioned, there are all the countries, all the different variables clearly gave us the opportunity to create a new dividend policy. Clearly, the forecast for the next two years and the best prices that for the next two years and the COVID impact and the uncertainty on the demand will create altogether the need to review our dividend. But clearly, we didn't just review our dividend. That is a process that we started at the end of February, when we changed and we improved our strategy looking at the long term and create value in the long term.

And then immediately during the COVID, we reacted very rapidly, and we improved our efficiency in terms of capex, in terms of opex, in terms of variable, fixed cost G&G, so we had opportunity to have a overall revision of all our cost base. And only after that, considering this scenario, considering the context, considering the pandemic, we restructure this new dividend policy. For the Massimo, maybe you can answer for the floor dividend the timing for the floor?

Massimo Mondazzi -- Chief Operating Officer Energy Evolution-Chief Financial Officer

Okay. So Oswald, the timing now, we envisage is July. So as far as the variable component, the Brent price, the average Brent price, each year, we envisage in July, it will be the reference to calculate the variable component. And as Claudio said, in his speaking notes, the variable component will be paid entirely in the year, in which it can be accrued. So if for 2021, for example, the average Brent price we envisage in 2021 sitting in July is $60, we will pay entirely the variable component in September, the same year, so 2021. And even the fixed component that is progressive as it was in the past in the previous version in our dividend, related mainly to the strategic progress in our in the implementation in our business plan will be assessed at the same time. So to cut the long story short, in July, we defined dividend that will be paid in the same year.

Oswald Clint -- Bernstein -- Analyst

Okay, super. Thank you.

Operator

Your next question comes from Alastair Syme of Citi. Please go ahead.

Alastair Syme -- Citi -- Analyst

Thank you. I just wanted to ask about the impairments and the price revisions you made. And one observation I had is that the price revision you made on gas was about 30%, whereas the price revision you made on oil was about 15%. So I just wanted to sort of understand why the cut to gas was much deeper? And just to try and relate that back to the point you made earlier and also back in February around the business increasingly migrating the waiting toward gas? How can we sort of align this business? You have deeper gas cuts, you're going to get more capital going into gas development? Thank you.

Claudio Descalzi -- Chief Executive Officer

Okay. The market yields to the fact that on the Brent scenario, there is, let's say, a sustained, which is coming from the OPEC activity, which is sustaining the Brent, and this is actually giving us confidence on the Brent scenario. On the gas, the current supply and demand dynamics, as you can appreciate are broadly indicating, at least for the next couple of year's difficult gas scenario. And you see also that from the cut in the LNG exporting from U.S. because, I mean, the price in this environment is such that even the lower even the lowest, I would say, cost gas-producing country needs to cut back on the production in order to be sustainable. So let's say that is actually explaining why in the short to medium term, we have, let's say, a lower gas price scenario.

Alastair Syme -- Citi -- Analyst

Can I ask on the capex and the full year plan? Are the cuts on gas in the upstream not much deeper than the cuts in oil? In terms of the $6 billion cut to upstream?

Claudio Descalzi -- Chief Executive Officer

Sandro Puliti will answer the question.

Alessandro Puliti -- Chief Operating Officer Natural Resources

Okay. Regarding the cuts on the capex that had been applied in 2020, they are mainly located in our projects in Mozambique. So they are certainly related to the gas. And but in regards also several other projects in most of our countries where there is a mix of gas and oil.

Claudio Descalzi -- Chief Executive Officer

Just to complete the answer. Clearly, we had a mix of cuts in our capital revision. And we reduced or we postponed the giant or the big projects where we have a strong capital allocation. And if you look at our discoveries, our recent discoveries, all the big giant projects are gas. So for that reason, the postponement cover more of this. So it's not a question of gas, and nor was a question of postponing all the big capital allocation for the big project, and that is on gas. So that is the main reason.

Alastair Syme -- Citi -- Analyst

Yes. Sorry, just finally, if I come back to the February presentation, you suggested that by 2030, the upstream business might be sort of 60% weighted toward gas, I think that's the number you quoted. Is that still roughly the...

Claudio Descalzi -- Chief Executive Officer

Yes. Yes. That is confirmed completely. So we confirm our targets and this postponement in any case, is not a cancellation of the project. So it's a postponement to bypass it to be able to bridge these two these couple of years. So then, for example, as we presented in our presentation, will show in our presentation, the Indonesian project that is gas will restart in 2021. So that is an example of postponement. And then the other project in terms of FID is postponed of one couple of years. So we'll deliver that production in after the plan, but clearly, before 2030. And we have to consider that most of our discoveries are gas, so as gas-producing field. So that target is absolutely confirmed.

Alastair Syme -- Citi -- Analyst

Thank you.

Operator

Your next question is from Alessandro Pozzi of Mediobanca. Please go ahead.

Alessandro Pozzi -- Mediobanca -- Analyst

Yeah, good morning all and thank you for taking my questions. Yes. I have one on the capex. You announced actually an increase in capex in for green projects. I was wondering, if you can give us a bit more color on which projects you are thinking of accelerating? Also, remaining on this theme, clearly, lots of talks about hydrogen, I believe you're involved in bigger and more hydrogen projects in Italy, with a capture carbon capture in Romania as well. And I was wondering, how do you think how competitive do you think blue hydrogen is going to be versus green hydrogen?

Claudio Descalzi -- Chief Executive Officer

So thank you. So the first question was related to the green investment. Clearly, what we said during the presentation, we allocated and we gave the main categories that is bio refineries, renewables and then increase on customers and client. Clearly, that is there is a reason, first of all, because that is one of the main pillars of our strategy. But we had also the demonstration in the last four months with COVID, with this big discontinuities, where the biorefineries helped a lot to recover, also in the marketing it was not it was depressed because of lockdown, have allowed to recover the returns of the R&M. We had a very interesting generator return of these refineries that is about 15%.

That will, we believe, we can increase especially with the feedstock that will be more closer to the refinery in the future and different kind of feedstock, as you know, by 2023. We will not use anymore palm oil but different kind of feedstocks and our technology allow us to a really huge number of possible feedstocks that will reduce the logistics cost. So this really is a key point. So clearly, the biorefineries that are funding and are getting good results, especially in the North Europe market, will be one of the capital allocation. Renewable, we confirm and for renewables, we want to link, as we said before, and we accelerate on that.

We will be clear more clear in our strategy, but we want to link our Eni gas e luce's, our retail Gas & Power to the renewables to be able to deliver and sell green products and the number of customers. Clearly, we're already a competitive advantage with respect to the other oil and gas company because we are more than nine million clients. We want to reach about 11 million clients in the next plan. And then growing to more than 20 million. And that will be a key point in the new strategy, to improve the efficiency and to stay far from the fluctuation of the hydrocarbons. So that is what we can say now, then we will give more details in our strategy in 2021.

Sorry, you about hydrogen stuff. I was so focused on the first question there, I forgot hydrogen. You know that we are one of the most important producer of hydrogen and consumer because all our refinery, our all industrial system use hydrogen. We are working on hydrogen, especially on the blue one because we have this big opportunity to have a CCS that is very, we can say, cheap. Because we have everything in place and it's huge. And that will allow us to have a blue hydrogen at very low cost. At the moment, I really think that the blue hydrogen is cheaper than the green one. Maybe that will not be more through in 10 years.

But at the moment, having us all the facilities, all the CCS and the know-how of produced hydrogen, and we have also our internal market and future a star market. I think that is something where we are putting our effort internal development. We are starting, and we're going to test also hydrogen in terms of feedstock for turbine and for power plant that is part of the future. And that clearly is in the cycle of decarbonization of our gas and getting a clean energy.

Alessandro Pozzi -- Mediobanca -- Analyst

All right, thank you.

Operator

Thank you.The next question is from Jon Rigby of UBS. Please go ahead.

Jon Rigby -- UBS -- Analyst

Thank you. Can I just ask on the, on the dividend and the way you're looking at the floor? I think is the mechanism you've come up with, I mean, it's unusual, but it has been talked about in terms of trying to move to an element of fixed and variable remuneration. But I'm interested in how you will think about calculating the improvement in the underlying business that generates a raise in the floor? And that's always seem to be the challenge for oil companies, is trying to understand what their sort of through-cycle economic generation, value generation and the resiliency of that? So I'm just interested in that. And also, whether there's any you talk about the floor, whether there's any risk to that floor, if you're making a decision in July? And then as is often the want of the oil market is you get some intense volatility in the second half of the year or the first couple of months of the following year when before you make a decision about your final dividend?

The second question is sort of linked, I guess, is you're obviously running at a lower capex figure at the moment, but with an expectation that you raise capex back to eight, and you've talked about some flexibility in that capex. So can you just revisit what considerations you have in terms of the annual capex figure that you use, given the there's sort of an implication that eight is your sort of through-cycle spending, but what is it that's making you decide on 6.5 or lower than 8? Especially, when you're relatively constructive about an oil price and macro improvement over the coming years and so your any dollars spent now on capex are obviously going to remunerate at a better value in two to three years, when they come on stream?

Massimo Mondazzi -- Chief Operating Officer Energy Evolution-Chief Financial Officer

Okay. So your question about the floor and how the floor could be up or down based on the strategic improvement in our performance. So the floor the up of this floor is we say, strictly related to the second part of your question. So about the flexibility. Because definitely, the floor has been fixed based on the current level of production, the current level of investment. And both are based on the scenario as we assume the price will be in the near future. But definitely, we are retaining some flexibility and how to use such a flexibility will depend on the scenario we can see in the next one, two years. So for example, if the oil price will be higher than $48 that is our scenario assumption in 2021, definitely, we are retaining some flexibility to push up our capex and push our production. So more or less so it's difficult to give you now an exact figure.

But the flexibility we believe we can have in order to react immediately to a better scenario would be in the range of in terms of production, 50,000 boe per day progressively, from 2021 and 2023, investing something in the range of EUR400 million, EUR500 million in the next two years. So if the price will be higher, definitely, we will do it and the cash flow contribution will be definitely positive. And this would be one of the key element to evaluate how to progress the floor in our dividend. And definitely, such an evaluation would be taken, as we said, every year, and the first evaluation is in July 2021. So such an assessment would be performed. We will see the scenario.

We will use our flexibility in terms of investment. If positive, we will definitely take into account the additional cash flow, the industrial additional cash flow, not the scenario one. So in case of a higher scenario, the dividend will be take advantage on both sides, on the scenario and performance, and we will release the annual amount of the dividend. As far as the down, you said, but what about an oil price below $45. So certainly, such a remuneration policy, the one that we are announcing today is based on the scenario we are assuming or higher scenario than that.

In case of a Brent price lower than $45, certainly, I don't have a clear answer right now. But definitely, we would evaluate or that is the downturn for how long, we expect such a downturn could last. But definitely, we will use the same flexibility I mentioned for an increase in the dividend floor. Definitely, we can use the same flexibility in order to resist, if it's the case, and to keep the floor at the same level, maybe giving up some additional investment to grow as we are anyway, envisaging in '22 and '23.

Claudio Descalzi -- Chief Executive Officer

I want to add something as a comment on what you said that this is an unconventional approach when we look at the dividend because, normally, it's very simple and its year-by-year or quarter-by-quarter. Here, we our effort this time is so volatile and not clear environment, was to give or is to give the maximum vision and clear and clear vision and transparency and transparency and all the different value of our structure for the dividend to our investors. We gave a lot of details. It seems, isn't complicated, but it's not complicated. I think it's very transparent because we talked for we gave for four years. We give a floor, so you know how you can calculate that.

And then, we give all the different environment on the flexible or on the other component that is a variable component and the buyback. So our we aim really to be transparent and be clear in a situation that is very volatile because if we create no clear situation inside and we have no clear situation in terms of perspective outside, it's not easy for our investor. Now you know exactly step by step. In July when you talk about what happened to the floor, are you how we can calculate the increase of the floor in relation to our strategy, plan and the implementation of our strategy. We will be very transparent.

Because we will communicate, when? July. And how we are going to explain you, how? We have you say, we have six months where we can take a risk. But as Massimo said, we have the flexibility to react, especially very rapidly, as we say, as we did in the last three, four months during a very difficult situation, so we can compensate. That is clearly a more risk compared to the big effort to be clear and give you a really solid platform to understand what is going to happen to our company in the next years in terms of strategy, action, capex, opex and capital allocation. That is one of the most important points.

Jon Rigby -- UBS -- Analyst

Yes. I think there's been a difficulty for investors to square up progressive dividends with the volatility that we've seen in oil markets. So I mean, this is one of the solutions to that. Can I just ask a follow-up? I mean as you increase your investment into non-upstream, I think clearly, an increasing component of what pays the dividend will be your midstream, downstream, your renewables businesses, etc. And dividends are a signaling device. So what will you look at there? Sort of ongoing ROE, free cash flow generation? What? I mean, it's that's obviously going to be an important element to the decision on your dividend floor, I would guess.

Massimo Mondazzi -- Chief Operating Officer Energy Evolution-Chief Financial Officer

The more important element would be the cash flow. So this will be the basis to evaluate any potential increase. Certainly, each project, and the one that Claudio mentioned, so biorefinery clients, renewables will be evaluated on a stand-alone basis, but as far as the remuneration policy, certainly, the cash profile generated in the in coming years would be the most important one.

Jon Rigby -- UBS -- Analyst

Okay, thank you and good luck in the new role.

Massimo Mondazzi -- Chief Operating Officer Energy Evolution-Chief Financial Officer

By the way thank you so much.

Operator

The next question is from Irene Himona of Societe Generale. Please go ahead.

Irene Himona -- Societe Generale -- Analyst

Thank you. Good morning. I have a couple of questions on the second quarter specifically. Upstream loss was actually deeper than anticipated. I wonder if you just talk around the key drivers in that, splitting it between volume price obviously, the cost I presume, were down?

Then secondly, in the opposite direction, in Q2, the downstream results of EUR70 million profit, very, very strong. Maybe, you did mention it, but is the full year guidance, not forget and borrow for the three downstream businesses, please, refining, marketing, and chemicals for EBIT? And then finally, any guidance for full year, working capital impacts at your Scenario?

Claudio Descalzi -- Chief Executive Officer

Luca you can answer through the first question and upstream losses and main point. And then further downstream, Pino can answer and then Massimo answer for the forecast and the rest.

Unidentified Speaker

Okay, regarding the losses for the upstream in the second quarter 2020, we have to account the losses for the OPEC Plus cut, that in terms of production are affecting us around 40,000 barrels of oil equivalent per day. And then, we had also the full effect in the second quarter of the losses due to the COVID situation that are around 130,000 barrels of oil equivalent per day when compared to Q1 of this year. So those are the two main elements regarding the losses.

Giuseppe Ricci -- Deputy of Chief Operating Officer Energy Evolution

Okay. So Irene, just to give you some color, some additional color on the performance the best performance we had on the Refining & Marketing, Gas & Power. So and the effect the headwind we had, mainly because of the COVID-19. So in starting from R&M, the refinery had substantially performed in line with the first semester 2019. Notwithstanding, I would say, a worse scenario in terms of margin. Compensating also more or less an EUR90 million, EUR100 million of COVID negative COVID effect because of definitely the utilization of our plants that in April and May and June has been reduced even down to 60%, more or less, especially, because of the oversupply in gasoline.

While the market has been affected as well, but we some way, we succeeded in keeping the margin a bit lower than it was with the loss that has been in the range of EUR40 million versus the first semester 2019. Talking about the retail Gas & Power. So the better performance has been due to the fact that first of all, we succeeded in increasing our client base. We added up something in the range of 150,000 clients in the first semester. And at the same time, we have been capable to increase the amount of services sold to our customers.

Also, thanks to the subsidies that now are available mainly in Italy, for investment in energy saving. That is something that is becoming more and more an additional business in our retail. So retail would be more and more, as we said, during our strategy. More and more, I would say, complemented with services that will be aside the sale of just commodities. And the retail gas e luce recorded an increase, notwithstanding, more or less at EUR30 million, EUR35 million of loss because of the COVID. So without such a loss, you see the better results that would have been even more important. Maybe Cristian could give some color on the GLP in the first semester, and he can elaborate on the guidance?

Cristian Signoretto -- Deputy of Chief Operating Officer Natural Resources

Sure. So as we have said before, the first semester has been very volatile environment. So just to name a few, the gas price vis-a-vis last year is 50% downwards and also the oil has been downwards and then upwards. So we have experienced an increased volatility. And so we were able, notwithstanding the negative impact of the COVID pandemic on the demand, to reoptimize the asset base, the portfolio base, especially in the Gas & Power business, and we anticipated all the, let's say, value extraction from the flexibility in the first semester, given exactly this volatility. And so we're able to capture this, let's say, trading margins, so to speak, mainly in Europe. To the contrary, let's say, the LNG environment has been pretty complex. And so we were able to broadly, let's say, be in line vis-a-vis last year in terms of results, also leveraging, notwithstanding the scenario leveraging on integration with our upstream production base in order to optimize the operations and to safeguard ourselves for a from possible losses.

Massimo Mondazzi -- Chief Operating Officer Energy Evolution-Chief Financial Officer

Okay. So in terms of full year guidance, I'm making reference to the slide number 11. So the EUR800 million are mainly based on the contribution from Gas & Power, EUR650 million and EUR350 million from Refining & Marketing. While we expect the chemical business still losing money, even with a slower pace versus the first semester with a total lost on yearly basis of EUR200 million. So as far as the Gas & Power, certainly the Eni gas e luche will keep on growing on the same part, likely, even faster, if COVID will allow us to take advantage fully from the client base growth. And at the same time, we expect that the refinery, mainly the biorefinery, the positive effect that we recorded in the first half will continue even in the second part of the year.

And then you mentioned working capital. So in terms of working capital in the full year, I can anticipate a number slightly worse than the one that I guided in the previous period. So previously, I said that we were envisaging a capital absorption in the range of a few hundred million in terms of working capital. Likely, this number would be now assume a bit higher, I would say, in the range of EUR600 million and EUR700 million because of the probability to have a slower pace in payment at year-end because of the crisis, mainly from our partners in upstream, including the national oil companies. While the performance in deferral payment in our retail and the other businesses is performing even better than what we assumed at the very beginning of the crisis, so in March.

And the tax rate, the last question, this year is a very, I would say, it's too volatile to measure the tax rate. So I'm afraid to say that the tax rate in 2020 would be quite unreadable. And but the same exceptionality would be on the cash tax rate that has been guided in the past in the range 30%, now we're envisaging something in the range of 20% because of such an extraordinary period. No reason to imagine that on a more steady environment. So more or less $60 per barrel flat, the tax rate, the adjusted tax rate will be 60%, as has been guided in the past, and the cash tax rate will be back in the range of 30%.

Irene Himona -- Societe Generale -- Analyst

Thank you.

Operator

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

Lucas Herrmann -- Exane -- Analyst

Yeah, good afternoon gentlemen. Unless I mean, thank you very much for breaking out the growth in decarbonized products and giving us some timeframe around delivery in terms of absolute volume. I wonder whether you could give us any comments on how you see cash flow from those businesses at an operating level developing over the same period, however? So try and put some financial numbers, the cash flow level, not at free cash level, around the progress that you see in decarbonized products overall?

And secondly, I wanted to ask you something on natural carbon solutions. And just as an important part of your policy of offset, it's an important part of other's policy, and I just wonder whether you could give us any indication of how the costs are moving as much as anything, the capturing acreage with which in which plant whatever, related to effectively decarbonize in a natural way, if you all start to gravitate toward the same broad policy?

Claudio Descalzi -- Chief Executive Officer

So on first question on the cash flow from our green activities I think that will be more specific during the strategy in 2021. This is an updated strategy. Clearly, we when we run our exercise, we run an exercise for all the industrial development, that we'll be more specific later on at the beginning of the next year. For the cost of the Forestry, I think Massimo or or sorry, Alessandro Puliti can say something on the natural?

Alessandro Puliti -- Chief Operating Officer Natural Resources

Okay. So the natural capture of CO2 to Forestry preservation activity, in terms of cost, it is an activity that is certainly give us a very good opportunity on lower cost for capture each tonnes of CO2 compared to the other techniques that can be applied. And we are in a region below the $10 per million tonne of CO2 capture rate.

Lucas Herrmann -- Exane -- Analyst

And Massimo, in terms of accessing land and forestry, how is that? Is that changing at all? How do you see things there? I know it's a slightly abstract question, but...

Claudio Descalzi -- Chief Executive Officer

So maybe Sandro then can complete. So what we or the work over the last couple of years, more than a couple of years, our main target was the countries or we can say, Africa, we can say or South America, but especially Africa, where we have all our operations, we are present. We have a presence in these countries. So it's not a problem of access I mean, access because, it's not our land, it's not a concession, it's nothing that of this kind is not like in the upstream. It's a portion of primary forestry that we protect.

So it's a question to training people to define standards, to give a certification, to get in connection with the UN authorities, to implement all the process of the red plus, because it's not just forestry conservation money, also it's also different other aspects, biodiversities and job creation. So it's a question of different component. So we don't have any problem to have access because it's a different kind of process. There is a forest. We have an agreement with the government, and we implement a process to train people, to pay people, to give back part of the credit in terms of money to develop the area.

And that is the approach, and it's working very well. Clearly, we work with developers. We already set up different agreement in the different countries. And this is something that we are developing. And our aim is to have by 2030 about 20 million tonne that will be captured by forestry. And that is in progress and is working quite well.

Operator

Thank you. The next question is from Massimo Bonisoli of Equita. Please go ahead.

Massimo Bonisoli -- Equita -- Analyst

Good morning. Two questions for me. One on the dividend again. Sorry, if I'm still confused about the new policy. Since there are many moving parts in the scenario not only related to Brent, but also gas prices, refining and chemical margins, production levels, euro-dollar exchange rate. Do you include these moving parts in the additional variable dividend and free cash flow and additional free cash flow generation? If yes, would you provide a sensitivity to each KPI, just to let us track those variables?

And the second question is on green capex. How much of the capex related to the energy transition projects may be funded through the scheme of the European green deal? Did you already consider the access to that budget?

Massimo Mondazzi -- Chief Operating Officer Energy Evolution-Chief Financial Officer

Okay. Starting from the second question, the answer is, yes. Definitely, we are working on the innovation fund, the recovery fund in order to get access to such a fund. So we are working to package our project and to follow-up the procedure. This is definitely a very good occasion that could be taken as an advantage in order to speed up, if possibly, this improvement and this transformation. As far as the dividend policy, to simplify, yes, the variable component is linked to the Brent only.

So we are assuming that the Brent will be the more important proxy in term of cash flow variation. So the number we will look at, in order to assess the amount to be distributed as a variable component is the only Brent price. So all the rest would be some way included and matched by the company. And you made another just OK, if OK. So if there is something lost, so please let me know.

Massimo Bonisoli -- Equita -- Analyst

No, no. It's all OK.

Massimo Mondazzi -- Chief Operating Officer Energy Evolution-Chief Financial Officer

The amount, sorry. And the amount you mentioned the amount of the flexibility. So we gave EUR900 million, each $5 Brent, and this is fixed. So it's not depending on the sensitivity we can assess each year, but the number has been set and then the number, the EUR900 million will remain in place all along such a remuneration policy.

Massimo Bonisoli -- Equita -- Analyst

Okay, thank you very much.

Operator

[Operator Instructions] Mr. Descalzi, that was the last question. If you'd like to make some closing remarks, sir?

Claudio Descalzi -- Chief Executive Officer

No. Yes. Thank you. So first of all, I want to thank you, everybody who was listening to us, but I want to thank my colleague, because it's the first time that I say that during this half presentation, first half presentation, that was a very tough period, and we work on different kind of issue and topics because it was on the revision of capex, opex and reorganize different kind of teams worldwide. Then we work on the organization, then we work on the capital allocation, revision of the dividend policy that took about more than two months. I think that this exercise was very useful to test our robustness for the future in terms of team and motivation.

And especially, we had the really we had the courage and the vision to start a new kind of phase in term of approaching the dividend policy. And clearly, as I said, our aim is to be transparent and give a clear reading of what we are doing because, outside, it is so confused and volatile that we want to be linear. So maybe you can think that this dividend or this policy is complicated? It's really simple, and in case, much simpler than the world outside. And that was our aim, and I hope that we succeeded. Thank you very much.

Massimo Mondazzi -- Chief Operating Officer Energy Evolution-Chief Financial Officer

Okay. Just a few words to say that this is my last conference call as a CFO, as an Eni CFO. So thank you very much, everybody, for the good interaction we had all along this time. Thank you.

Claudio Descalzi -- Chief Executive Officer

No. Are you're going to continue? Okay. Thank you.

Operator

[Operator Closing Remarks]

Duration: 70 minutes

Call participants:

Claudio Descalzi -- Chief Executive Officer

Massimo Mondazzi -- Chief Operating Officer Energy Evolution-Chief Financial Officer

Alessandro Puliti -- Chief Operating Officer Natural Resources

Unidentified Speaker

Giuseppe Ricci -- Deputy of Chief Operating Officer Energy Evolution

Cristian Signoretto -- Deputy of Chief Operating Officer Natural Resources

Oswald Clint -- Bernstein -- Analyst

Alastair Syme -- Citi -- Analyst

Alessandro Pozzi -- Mediobanca -- Analyst

Jon Rigby -- UBS -- Analyst

Irene Himona -- Societe Generale -- Analyst

Lucas Herrmann -- Exane -- Analyst

Massimo Bonisoli -- Equita -- Analyst

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