ENI SpA (E) Q3 2021 Earnings Call Transcript

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ENI SpA (E 1.49%)
Q3 2021 Earnings Call
Oct 29, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to Eni's 2021 Third Quarter Results Conference Call, hosted by Mr. Francesco Gattei, Chief Financial Officer. [Operator Instructions]

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

Francesco Gattei -- Chief Financial Officer

Thank you. Good afternoon. Welcome to Eni nine months 2021 conference call. The recovery of the global economy and the rebound in the demand for energy is continuing and accelerating. However, the pent-up demand that is emerging after the unprecedented disruption of 2020 is putting strain on the balance of the market. In 2021, structural features of supply weakness, which are substantially expanding along the full range of commodities have emerged. The slowness of the supply response is, not only related to the rapid recovery of the economy, but more substantially to nearly seven years of under-investment that does affected these markets. As a consequence, Brent has returned to levels around $85 per barrel, while in gas, we are witnessing historical record of $30 per million BTU on the European and Asian spot markets. Eni will remain focused on capital discipline to reduce its cash neutrality priority. The rapid deployment of new technology to speed up the execution of our decarbonization plans, and on the acceleration in establishing dedicated business vehicles as a key strategic element to focus our growth and to highlight the full value of our portfolio.

Let's now move on the summary of our results. In the third quarter of 2021, we accelerated our economical and financial results and provided evidence of consistent operating performance. This trend is expected to continue in the coming months. Looking at our Natural Resources business, in upstream, we produced 1.66 million barrels per day in the first nine months and continued delivering exploration results with the recent major discovery in Ivory Coast. In GGP, we were able to capture the extraordinary uplift of gas prices and successfully renegotiated long-term contracts to align the terms to current market conditions. In terms of portfolio, we are progressing with the business combination in Angola. And as announced few days ago, we have launched the process of ownership structure review for Var Energi that could include a potential IPO in 2022. Furthermore, our HyNet CCS project in UK, was accepted as a Track 1 project, giving it access to the GBP1 billion UK government fund and allow Eni to proceed in developing one of the first UK industrial clusters to apply CCS and materially reduce CO2 emission in the country.

With regards to Energy Evolution, in early October, we launched the process for an initial public offer for our newly integrated retail, renewable business. We will detail more on this in the next slide. In downstream, R&M is now almost at breakeven year-to-date, while on chemical, Versalis reported an excellent performance in the first nine months.

Turning to Group Financial, our net profit adjusted of the nine months set the EUR2.6 billion, exceeding 2019 pre-COVID level, driven by the EUR1.4 billion of the third quarter among the strongest results since 2013.

Retail and renewables initial public offering is a strategic milestone for Eni strategy of decarbonizing our domestic client, accelerate growth in new green power capacity and additional customers, increase an independent self-financed entity to ensure the most efficient capital allocation. Our unique business, the merged retail, renewables and EV charging points, results in a synergic model that will de-risk our growth and will expand the green offer we can provide to our clients. Listing of the new shares, subject to market condition at the Milan Stock Exchange, is expected in 2022. Further update on this business, including the new company name, will be made on the Capital Market Day on 22 November.

We are not limiting the portfolio restructuring only to our renewable business. In the upstream business, we continue to seek opportunities to enhance the value of the portfolio through business combination that has proved successful in creating growth-oriented fully autonomous vehicles. Var Energi Norway was the first example of how such organization could a lot attention. Created in 2018, it is now the larger independent E&P company in Norway with 239,000 barrels per day, and it is a reliable source of cash through dividends to the parent company. Operational excellence and development of a diversified portfolio allowed to average production by more than 30% in three years, while a focus near field exploration announced the future potential with a resource discovery in the last few years of more than 180 million barrels of oil equivalent.

Now, we are ready to move to a new step for the Var Energi story. This week, we have launched a review of company structure to further crystallize value either through an IPO or a partial stake sale. We expect to conclude this process, subject to market condition, in 2022. At the same time, in Angola, we are well progressing with the business combination with BP with establishing a top-ranked player in the country by early next year.

Let's now move to 2021 results. In Natural Resources, upstream recorded a solid performance with adjusted EBIT in the first nine months at EUR5.7 billion. The Q3 results at EUR2.4 billion are above pre-COVID level, despite production still ramping up after the maintenance season. In a quarter, production was sustained -- in the quarter, production was sustained by recovery of plant turnaround, especially in Norway and the ramp-up in Indonesia, Sharjah Emirate and in Angola, which more than compensated the PSA effect and disruption of Ida Hurricane. We expect production to further recover in the last quarter at 1.76 million barrels per day. Thanks to the ramp-up in Norway and Kazakhstan and production recovery in USA. And confirming our earlier guidance of around 1.7 million barrels.

Focusing on exploration, Eni confirm its leading the performance with a major discovery in Ivory Coast in September. The first well discovered the light oil and associated gas in a new play concept in the deep water, Baleine Prospect, with preliminary estimate of more than 2 billion barrels of oil equivalent. Baleine project is designed to target fast-track development to meet the domestic gas need, and it will be the first of them in Africa to reach net zero emission, Scope 1 and 2. Finally, with this 90% working interest Eni, the field is a potential candidate for our dual exploration model. Our nine-month total discovered resources were more than 600 million barrels worldwide. Thanks to this performance, we can raise today our 2021 target by 40% to 700 million barrels.

In GGP, we registered a positive EBIT in the last quarter. Capturing the spike in spot price, we have been capable to optimize our portfolio, more than offsetting the negative PSV-TTF spread. Thanks to continuing portfolio optimization in this favorable market scenario. And to one-off contribution from the conclusion of contract renegotiations, we now expect to exceed EUR500 million of EBIT and EUR300 million of free cash flow for 2021. And this guidance could be possibly revised upward under sustained volatile and tight market conditions.

Moving now to Energy Evolution, all the business contributed with positive results in this quarter. In retail and renewables, pro forma EBITDA up EUR440 million, represent a 35% increase year-on-year, sustained by extra-commodity service contribution and customer base management actions. We expect the combined entity to continue its steady growth toward the end of this year for an EBITDA of EUR600 million and with renewables EBITDA at breakeven. R&M turned positive with an EBIT of EUR150 million in the last quarter. Traditional refining contributed, thanks to higher throughputs and asset optimization, also margin remains slightly negative.

On the other hand, marketing captured other side from the summer dryer season, unless a severe mobility restriction. Versalis is progressing the excellent performance with positive results, sequentially lower on this quarter, due to petrochemical margins normalization, a lower plant utilization due to planned maintenance in Brindisi and Mantova. While performing positively from the economical point of view in downstream, we continue to enhance our structure, our portfolio of low carbon technologies.

In R&M, we started production of sustainable aviation fuel from waste and residuals. Sustainable aviation fuel growth potential is huge, as it can significantly contribute to the decarbonization of aviation in the short- to medium-term. In Versalis, we acquired 100% of Finproject, becoming the Italian leader in the production of special polymers and with the acquisition of Ecoplastic, we are further specializing in the recovery, recycling and transformational chain of styrenics polymers.

In terms of our outlook for 2021, downstream EBIT will be negatively impacted by feedstock and energy cost increase. We expect an yearly EBIT for downstream at around EUR200 million. But this guidance might be further revised downward based on current market conditions.

Eni has an important plan of growth in bio-refinery and bio-chemical capacity, but the exceptional growth that is expected in bio products demand will require a robust and consistent growth of diversified feedstock. In order to secure the supply of our plan, we are developing a network for agro ops [Phonetic] in many countries of upstream presents, that will ensure and integrate contribution of bio feedstock at our -- to our processes. Leveraging our long-standing relationship with African country, we have recently signed alliance with Z [Phonetic] together with other key countries such as Kazakhstan, will contribute to our worldwide agro production target of 0.1 million, 0.8 million ton per year by 2030. Furthermore, this agriculture initiative has a direct positive impact on development of new secular economy models. In Congo, as an example, we started a pilot project planting cast [Phonetic] on BS on average 100 hectares of land, not in competition with food.

Moving on to our cash flow performance. Our cash flow from operation before working capital of the nine-month was strong at EUR8.1 billion, more than covering our capex of EUR4 billion in the period. For 2021, we expect cash flow from operation before working capital to be close to EUR12 billion, with a Brent price of around $70, and slightly negative shale [Phonetic]. If the current forward fuel prices are confirmed, during the last quarter, we expect to reach cash flow from operation of around EUR13 billion. With yearly capex assumed to be EUR6 billion, we are expecting organic free cash flow at around EUR6 billion, at $70 and EUR7 billion at current forward prices. The performance registered in 2021 will allow the Company to keep leverage at around 28%.

To conclude, Eni has continued to advance on the strategic path outlined at the strategic presentation in February. In decarbonization, we have met the first sustainable linked bond in the oil and gas sector. We were promoted to the Track 1 phase of negotiation for CCS project in UK, with a breakthrough achievement toward plasma confinement in magnetic fusion, we confirm the technology remains at the foundation of our transition model. And as a material move to target Scope 3 reduction, we launched the IPO of retail and renewable business.

With respect to capital discipline, we lowered our upstream capex coverage below $35 per barrel. In addition, we increased our shareholder remuneration through dividend, now back at pre-COVID level and six months buyback EUR400 million that we expected to conclude by year-end.

Finally, we are deeply reshaping our Company structure to enhance value creation with a business combination in Angola and the review of the ownership in Var Energi that we reinforce our growth in Norway.

Now, together with Eni top management, we are ready to answer to your questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Giacomo Romeo of Jefferies. Please go ahead.

Giacomo Romeo -- Jefferies -- Analyst

Yeah. Good afternoon. Thank you for taking my question and congratulations on the great results. I have a couple of questions. First one is related to the renegotiation gain that you discussed impacting GGP in Q4. I just wanted to check if whether this gain is going to be translating entirely into a cash payment. And related to this, whether you are going to see a reduction in your historical sensitivity toward the TTF-PSV spread going forward?

The second question relates to the R&R business, I mean, whether the extreme prices that we're seeing are potentially impacting you in terms of at a higher enhanced credit risk? And whether this is a concern from your end? I'd like to see -- to hear your thoughts on that. Thank you.

Francesco Gattei -- Chief Financial Officer

Okay. I will leave the first answer to Cristian Signoretto, Head of GGP. And then the second one to Alberto Chiarini [Indecipherable] for the retail, renewables.

Cristian Signoretto -- Deputy Chief Operating Officer, Natural Resources

Hello. Thanks for the question. So, on the spread PSV-TTF, yes, you are right and in fact, one of the aim of the renegotiation was to clearly change the exposure of our portfolio, reducing substantially disposal to the spread PSV-TTF. This will clearly then change it starting from, basically, the Q4 of this year.

In terms of cash, the agreement is set for receiving part of the benefit, cash benefit, I'm saying next year, and while most of the EBIT is going to be accrued this year.

Alberto Chiarini -- Chief Executive Officer, Eni gas e luce SpA

Okay. For the second question, so, in terms of the impact of price so far, we haven't suffered any drawback from high prices and the reason is that, we were fully covered for our deliveries. So, it is clear that the volume risk can be higher, but we are managing it quite well.

In terms of credit risk, so far we haven't seen any real impact. And this is also thanks to the measures of the government that have helped families that could have some difficulties in paying gas and power prices.

Giacomo Romeo -- Jefferies -- Analyst

Thank you. Very clear.

Operator

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

Michele Della Vigna -- Goldman Sachs -- Analyst

Thank you very much, Francesco. I really had one main question about your cash distribution to shareholders. The flexible dividend strategy has worked very well in this recovery and it has provided visibility on where the dividend would go if a different level of oil prices. Now, we are pretty much $20 per barrel above the higher end of that range, which was set at $65. And I'm wondering as you start to think about the further upside case, does it make sense to think more of a continued dividend increase or because the dividend yield is already the highest in the sector, it could make sense to shift more toward buyback and you start to consider further upside to your cash distribution going into next year?

And then if I can throw in a second question, I really want to ask you about biofuels. You have been an early mover there and it has substantially improved the profitability of the refineries you've shifted into biorefineries in Italy. But we are now seeing a lot of competitors starting to also follow through, especially for sustainable aviation fuel. Do you fear there could be a few years when actually sustainable aviation fuel is maybe over-supplied on the European market? Thank you.

Francesco Gattei -- Chief Financial Officer

Thank you, Michele. I will answer to the question about distribution and then I leave to Pino Ricci the answer to the biofuel and particularly the aviation fuel. In terms of distribution, you are right in saying that clearly we are, let's say, well above our pricing deck for the distribution. But I would say also that is too early. That once we prepare our distribution policy, we design distribution policy, we look, generally speaking, in a long-term way with a four-year plan, with a strategic plan in our end. We are working on that. Clearly, we have idea. I think that, as you said, this flexible mechanism has a value, has merit. We have also to understand how this could work in an upper scenario case that's clearly one year ago was completely out of sight. So, I think that is a good comment from your point of view, but we can answer more properly in the coming months, in particular, in the next strategy presentation.

Then I leave to Pino.

Giuseppe Ricci -- Chief Operating Officer, Energy Evolution

Thanks, Francesco. About the biofuel, in particular, the SAF, the Biojet, of course, the competition is growing because there are many announcements of newer biorefineries of conversion of existing refinery to biorefinery. One of this is a shale in Holland with a project that is with the same capacity or what we have in Gela started up two years ago. And -- but what we regain is the advantage of technology, Ecofining technology development together with Honeywell UOP is very, very strong, very flexible, very flexible in term of feedstock and product. In fact, we have a robust plan to grow the production of SAF for aviation. And we expect also an increase of the market, because the price to -- the aviation sector to use the SAF is the only way today to decarbonize the aviation transport is a very important point.

And awaiting for the officialization of the rules by Europe and not only Europe for the minimum count of SAF in the jet fuel, we are seeing an increased interest in both aviation companies and airports [Phonetic] to start to use the SAF. This is very important. If you consider that in the world, there is a market of -- apart COVID, more than 250 million tons per year of SAF and the trend of grow in the year. In the same time, it's under definition, the new rules, European rules for the biofuel in the road transport. We expect an increase also in this way, because the target of 50 or 55 is so strong that, in fact, the role of biofuel to meet this target is mandatory and we expect an increase in the obligation for the next decade. So, finally, we will have an increase in the production available, but we will have a strong increase also in the demand.

Michele Della Vigna -- Goldman Sachs -- Analyst

Thank you.

Operator

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

Massimo Bonisoli -- Equita SIM -- Analyst

Good afternoon, Francesco. Two questions. One is regarding Var Energi. Just to understand better the rationale behind the strategic option on Var Energi, you mentioned IPO or partial divestment in order to crystallize value. And also, if you can remember us the dividend distribution on Var Energi, and if you -- and what you expect for next year in terms of dividend from Var Energi?

And the second question is on Mozambique. And if you can refresh us, when do you expect Coral to start up production? And any thoughts on the onshore LNG following the news from Exxon? Thank you.

Francesco Gattei -- Chief Financial Officer

Okay. Thank you. About the rationale, clearly, Var Energi is a success story. And being the second player or the second operator in Norway, I think is a value that is not properly recognized internally in terms of market appreciation and particularly inside Eni. But I feel also that, by having this kind of, let's say, market or value lock, there will be opportunity to free more funds, more cash availability for future growth, for more opportunity to expand the business of Var. Var, has a quite, let's say, successful management team. And I think the market appetite for this kind of entity is compelling, is interesting. And I think that from both parties, there is willingness to disclose the real value inside the Company.

In terms of distribution, Var was an excellent distributor of diesel in the past years. We actually collected, including this year, I'm speaking about 100%, almost a $3 billion. This year, the expectation is to have around $950 million, 100% again. And to have a last tranche in the last quarter in the range of $260 million.

In terms of Mozambique, I leave it to Alessandro Puliti.

Alessandro Puliti -- Chief Operating Officer, Natural Resources

Hello. Good afternoon. So regarding Coral, we confirm that Coral floating LNG will start up in the second half of next year, 2022. And I would say, there will be 3.4 million tons per year of LNG that will enter in the market really at the right time.

Regarding Area 4, the updated project and the new FID date will be defined on the -- based on the results of the ongoing optimization phase. And also taking into account the evolution of the security situation in the offshore northern part of Cabo Delgado Province in Mozambique.

Massimo Bonisoli -- Equita SIM -- Analyst

Very clear. Thank you.

Operator

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

Bertrand Hodee -- Kepler Cheuvreux -- Analyst

Yes. Thank you for taking my question. Two, if I may. The first on fusion energy, Commonwealth Fusion Systems, CFS, announced a major breakthrough in September. They have doubled possible magnetic fields using revolutionary magnets. This could pave the way for fusion to become commercially viable by early 2030s. I made some extensive research on the subject and I'm really excited by what CFS has achieved. So first congratulations for Eni outside the box thinking and vision for taking a stake in CFS back in 2018. However, even if yesterday, there was an article in the Financial Times about fusion energy, the press coverage has been quite muted while the sell-side coverage has been quite negligence. How do you explain that? And secondly, did you have some discussion since this major breakthrough either with the Italian government or the Italian Nuclear Agency or other regulatory bodies on this topic? That's the first question.

And the second question is more, I would say, a bread and butter. It's -- can you guide us about what could be the tax rate at Eni in $70 price oil, knowing that the tax rate this quarter in Q3 was significantly below expectations?

Francesco Gattei -- Chief Financial Officer

Yeah. Thank you for the question, in particular, the question about the CFS. So that mainly for fusion that is clearly a potential breakthrough technology. I agree with you that the -- from the point of view of the market, in particular, from the analyst of the sector, there is still a relatively interest. You captured this news and you make, let's say, a deep analysis on the potential of this technology. I think it is a matter of being quite with this kind of technology, new technology and having -- let's say, the progress toward the evolution of the technology coming and becoming a reality. You know that we have completed the first phase, that is the test of the magnet. Now, we are entering the second phase that will bring 2025, the first -- the creation of the pilot of the first reactor in order to prove the continuity and the value of the energy reaction. So, having the amount of energy in excess of the amount of energy used and this go with a spark. And this -- if it will be successful, will open the door for the first commercial reactor that is called Arch [Phonetic] and will be available if everything is fine within early next decade. So, there is a quite, let's say, short time to market for a breakthrough technology. What I can say that, out of the reaction inside the analyst group, there is a quite strong interest from investors in taking or participating to the finalizing that the Group, the team -- the management team of CFS is now performing. So I would say that the interest is strong, clearly, is not completely visible around all the tables.

About the tax rate, it is true that the tax rate in the current environment is extremely low. What we can say, it is -- clearly, it is low because it is not just a matter of having $70 award, but it's a matter of having a gas pricing at the level that you know. This what is generating -- what is causing. This is causing that all the businesses and geographies in E&P, etc., which have lower tax rate are becoming more relevant in results contribution. I'm referring to Italy, I'm referring to UK. And therefore, I'm referring to all the counties, in US, the generator that have, let's say, lesser than average in terms of tax rate. And clearly, the gas pricing is one of the factor that is determining this rate. So if we will be in a $70 award with the current market environment of pricing, we will have a similar, so below 50% tax rate. Otherwise, in a more normalized gas price environment, we will be something between 50% to 55%.

Bertrand Hodee -- Kepler Cheuvreux -- Analyst

Very clear. Thank you.

Operator

The next question is from Jason Kenney of Santander. Please go ahead.

Jason Kenney -- Banco Santander -- Analyst

Yeah. Thanks. So just looking at the guidance for the global gas portfolio of EUR500 million EBIT of 2021. And I know you mentioned earlier that the renegotiation process, most of the EBIT will come in Q4 and the cash may come through next year. I'm just trying to think through cycle what you were budgeting for GGP EBIT, say, on average annually through to the period 2025. I'm trying to get a sense of where it might normalize back to in 2022, 2023, 2024. That's my only question. Thanks.

Francesco Gattei -- Chief Financial Officer

Okay. I leave it to Cristian to answer.

Cristian Signoretto -- Deputy Chief Operating Officer, Natural Resources

So, hello, thanks for the question. So, look, clearly, as we said, the renegotiations and I would also add the fact that the stream of volatility, the level of prices of gas clearly has -- have an effect on the 2021 results. And this will clearly also change our expectation for the future plan, because if you remember, we were targeting EUR800 million free cash flow over the -- cumulative over the four years, but clearly we didn't take into account such evolution of the portfolio and of the market. So clearly, we will have an upside in the plan that we will disclose and analyze better in our next four-year plan.

Jason Kenney -- Banco Santander -- Analyst

Maybe just a follow-up, because obviously the nine months said about EUR44 million. So you guide EUR450 million coming in the last quarter. What kind of run rate should we be expecting quarter-on-quarter in the 2022 period?

Cristian Signoretto -- Deputy Chief Operating Officer, Natural Resources

So you are asking for a guidance on quarter-by-quarter in 2022?

Jason Kenney -- Banco Santander -- Analyst

Or an annual [Technical Issues]?

Cristian Signoretto -- Deputy Chief Operating Officer, Natural Resources

Because, I mean, look, as we said, clearly the fourth quarter result is compounding also some retroactive effect, because as I think, we probably explain these agreements will have some retroactive effect that will clearly manifest the results in Q4. So those elements will not clearly reappear in 2022. What is going to change instead, as I told you before is that, this -- the exposure to the PSV-TTF spread will not be there basically starting from Q4. And, I mean, as you can imagine, this year that spread has had strong headwinds against our business, because I mean we -- just to give you a couple of numbers, we -- last year, in the first nine months, we were having EUR15 per thousand cubic meter, positive spread, and this year in the first, let's say, nine months, we had a negative EUR2 per thousand cubic meter. So that has a very negative effect on our accounts. And this will not be there next year just because, I mean, we changed the exposure of the portfolio. So, I think that will drive the profitability of the next quarters.

Jason Kenney -- Banco Santander -- Analyst

Okay. Thanks.

Operator

The next question is from Jon Rigby of UBS. Please go ahead, sir.

Jon Rigby -- UBS -- Analyst

Thank you. Hi. So two questions. One is just a follow-up to the last question. So if it's not the exposure to TTF-PSV margin that's driving the underlying earnings from the gas business, what is the input into the calculation that drives that number just so that we can understand sort of variability going forward?

And the second question, you talked about the Cote Divoire development being net zero development. Can you just sort of run me through the difference between what you're going to be doing there versus, let's say, a conventional offshore project that move it to being net zero? What are the measures that you are taking so that it can be net zero? Because on the face of it getting a net zero offshore development in West Africa, in fact, a remarkable achievement. Thanks.

Francesco Gattei -- Chief Financial Officer

Again, Cristian and Alessandro Puliti, for the two questions.

Cristian Signoretto -- Deputy Chief Operating Officer, Natural Resources

Yeah. I mean, what's driving the profitability of the business going forward. So, basically, the global gas and LNG portfolio takes care of the final part of the value chain of the gas and LNG business. So, basically, bringing to the market and monetizing. On the one hand, the equity gas and LNG, and on the other hand, clearly, also the third-party gas and LNG in our portfolio. So in the future, I mean, also today, I would say, but in the future, especially, these will be driven by two major elements. On the one hand, we have, what we call, the intrinsic value of the portfolio. So basically, we buy and we sell and we capture the margin between, say, supply cost and sales cost. And that's one element of the business.

The second element, which is becoming more and more important, as we speak, because of the volatility of the market is that, we have an array of options in our contract logistic time spread options that we try to optimize every day with the movement of the market, being it in the gas and being it in the LNG. And this will clearly be another relevant part of the profitability, which clearly depends on how far is the range of volatility and how fast this will change. And we can say that in the last, I would say, few months, this has been extreme. And I think this is under the eyes of everybody. In the future, it's difficult to say, but there are signs that this volatility is probably here to stay given the strong, let's say, tight balance between demand and supply in gas and LNG, and pleased until the next big wave of LNG production that will come on-stream with Qatar.

Jon Rigby -- UBS -- Analyst

So just to follow up, sorry. So can I think of this as just a change in the contract structure to remove TTF as a proxy for your cost of gas, effectively, is that -- it's not proving to be a good import into calculating the cost of gas to get you the appropriate margin for the work that you do in distributing gas to your customers? Is that a fair way of thinking about it?

Cristian Signoretto -- Deputy Chief Operating Officer, Natural Resources

It is.

Jon Rigby -- UBS -- Analyst

Yeah. Thank you.

Alessandro Puliti -- Chief Operating Officer, Natural Resources

Okay. Regarding Ivory Coast development, and what we meant is that, we will have a Scope 1 and 2 net zero development in Ivory Coast. And this is based by implementing a number of the carbonization initiatives such as REDD+ initiative, so forestry initiatives in the country. With the programs for the protection of primary forest. And also including development of renewable energy in the country to supplement the gas production and to offset the initiatives of the offshore development.

Jon Rigby -- UBS -- Analyst

Is there anything intrinsic to the actual development that you're doing, sort of, I don't know, the way that you're running the generators or supplying the power or whatever?

Alessandro Puliti -- Chief Operating Officer, Natural Resources

Clearly, the development will account the state-of-the-art and the best available technologies to reduce actual emission and increase efficiency of the energy utilization of the offshore facilities.

Jon Rigby -- UBS -- Analyst

Okay. Thank you.

Operator

The next question is from Ellis Skinner of J.P. Morgan. Please go ahead.

Ellis Skinner -- J.P. Morgan -- Analyst

Hi. Good afternoon, Francesco, and everyone. This is Ellis with J.P. Morgan energy team. Two questions, if I may. The first, wanted to shift back and look at the slide, obviously, the nine-month results reached sequentially lower quarter-on-quarter. And in addition sort of the lower utilization you report by tighter margin. To what extent have you seen sort of lower product sales prices versus higher cost? So to put another way, are you seeing an impact from higher gas energy prices in new operations and how should we expect the business in for next year?

And then secondly, focusing on EGL and I think pretty well positioned with the integrated business model at the moment. Can you talk more about the potential for customer numbers to increase sort of operating the business in the current environment becomes more and more competitive if prices are still so high? Put in another way, do you expect the growth here to come from organic or inorganic growth? Thanks.

Francesco Gattei -- Chief Financial Officer

Okay. Adriano Alfani for the chemicals and then...

Adriano Alfani -- Chief Executive Officer, Versalis

Yeah. Thanks for your question. As you said, the first nine months of Versalis performance were extremely positive. Although we have been negatively impacted by low asset utilization. The low asset utilization that you described for Q3 were driven by two major effects. One, as some plant and around that we have been the biggest cracking plants in Brindisi. And also some upgrade that we made in the styrenics unit in Mantova in order to change the mix of product and to go in one of the direction we want to move at that portfolio in terms of utilization. So we've spent a lot of money in order to upgrade the plant and to invest in diversified mix. This explain why you have seen for Q3 low asset utilization. The second driver of the low asset utilization was also the fact that we experienced at the end of August some unplanned events, especially in the CCV area and all we lost a couple of weeks of production that impacted the production.

And going to the second part of your question about how gas or, let's say, the energy could impact the performance of the business? Clearly, we already see some impact in the Q4, because of the cost impact of electricity and gas in the chemical sector is almost doubled, so in Q4. So we see double costs compared to the Q3. And there is some impact, not in terms of volume that we can sell, but of course, in terms of profitability. The market today is not paying for cost of utilities. It's something that all industry is looking around and this is something that also in terms of negotiation for next year that we are starting just in this week like every year, we are looking to reflect some of the utilities cost, so at least the change in volatility of utilities cost read as gas and energy in the price formula and other formula in order to mitigate the impact on profitability for 2022.

Clearly, as you can imagine it's not an easy conversation you're going to have in the value chain, but it's something that we start to work on. If the volatility remains as or, let's say, that trajectory remain as we see now, we might see some volatility in terms of profitability in the chemical sector for 2022 that we'll have to manage.

Cristian Signoretto -- Deputy Chief Operating Officer, Natural Resources

Okay. In terms of growth for the retail customers. We have to differentiate Italy and abroad. In Italy, we are almost -- we are incumbent in the Gas and we are growing in Power more than what we are decreasing customers in Gas. And this is the way we are trying to grow. So we are really targeting Power customers. In terms of abroad, we have -- we are a tracker in a way, so we have very lean organizations. And just to give you an example, in France, we have almost doubled our customer base in the last four years and we are now almost 1.4 million customers. In Greece, we recently entered into the Power market and in Spain, we've -- Aldo is a new acquisition and we are confident that we can grow.

Impact of high prices, of course is, a reduction of new customers prospects, but in reality this is for all the prior year, which basically means that today the churn rate is lower because every customer that is -- has the fixed price offer is -- has no any convenience to switch to a new price with the current high price. So -- but this is for all the competitors. And so the trend for us is pretty much the same. Less churn, less acquisition, but overall a positive balance.

Ellis Skinner -- J.P. Morgan -- Analyst

Thanks, gentlemen.

Operator

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

Irene Himona -- Societe Generale -- Analyst

Thank you. Good afternoon. Two questions please. The first one, back to the topic of cost inflation. Aside of the pressure in Downstream and chemical margins, can you talk, Francesco, perhaps about any cost inflation pressures in your Upstream, please? So what are you experiencing? Are you perhaps protected for a period by your contracts with the suppliers? How should we think about the topic basically? And my second question is on capital allocation. You are looking at two potential IPOs now and with those Eni will raise quite a bit of capital. How should we think about the potential uses of that capital, please? What are your priorities for that cash? Thank you.

Francesco Gattei -- Chief Financial Officer

I will leave the first question to Alessandro, then I'll come back about the capital allocation.

Alessandro Puliti -- Chief Operating Officer, Natural Resources

Hey, good afternoon. So regarding cost -- possible cost increase. Certainly, the pressure on raw material is something that we are starting to see on the market, especially for production facilities, clearly iron prices are and metal and steel are more important. On the other hand, we have to say that our Upstream currently ongoing projects are sanctioned. They are under EPC contracts with basically prices that are fixed and already awarded. So we do not expect in the projects going on this year and next year basically irrelevant impact due to the raw material price fluctuations. For the future, certainly we are gearing up with appropriate procurement strategy, trying to limit to the bare minimum the impact of those possible prices increase.

Francesco Gattei -- Chief Financial Officer

About the allocation, clearly, you are right that next year with the different IPO, the business combination and the valorization of Var, clearly there will be quite a material contribution of cash. What we did this year, I think, that is the best way to measure how we will react next year, how we act next year. This year, we were substantially able to delever the company to increase the distribution policy to the level that we had before COVID, not only in term of dividend, but also with a buyback because that we are actually executing in almost four months. And we will -- we had also sped up in the transition, in the transformation of the comp, transformation of the business. So the answer is, we will continue next year to pursue these three different directions. We will reorganize the company, improve all the portfolio as much as we can, as fast as we can to capture the evolution of the market. On the other side, we will continue to keep an attractive distribution policy. And we will deleverage in order to further reinforce our balance sheet.

Irene Himona -- Societe Generale -- Analyst

Thanks so much.

Operator

The next question is from Biraj Borkhataria of RBC. Please go ahead.

Biraj Borkhataria -- RBC -- Analyst

Hi. Thanks for taking my question. Two please. The first one, I was just wondering if you could bridge from the prior cash flow guidance for 2021 to the updated guidance, because I heard -- earlier in the call, you mentioned that the cash renegotiation cash was a 2022 event. I was wondering what's changed for this year or fourth quarter of this year. And then the second question is just a clarification on the renewables out here. I just wanted to be clear, are you looking to sell down your stake and receive cash or are you looking to raise equity within that business unit as part of the IPO? Thank you.

Francesco Gattei -- Chief Financial Officer

About the bridge or the calculation for the CFFO guidance, you know that we presented the guidance, it was above EUR11 billion exactly was close to EUR12 billion in a $70 world. The difference clearly is the Gas. The Gas is the main source of the change. Then there are a lot of moving part, there are the SERM --negative SERM that is prolonged, etc. But the major contributor in this jump of almost EUR1 billion at the same level of oil price or almost the same level of oil price is substantially the Gas pricing. And similarly, the next step, the next change in the guidance till the end of the year is based on the assumption of an higher oil price. It's at the end of the day, almost $3 on average per year that is equivalent of EUR400 million, EUR500 million. But there is also again quite a material step up in Gas pricing that is playing this additional contribution.

Sorry, the other question about the renewables or the IPO -- OK. It is about the -- clearly, what we are -- we are working on that really and I recommend to postpone all this question in the next Capital Market Day. But, as a general comment, we target to grow in the market with a company that is substantially free of debt, able to raise its debt according with its balance sheet, with a company that has an EBITDA that is quite material. And therefore we will have according with all information, with the preliminary information that we collect from the banks, the capability to raise from 3 to 4 times the EBITDA. So, if we are speaking about EUR3 billion, EUR4 billion along the period, eventually EUR5 billion at the end of the four-year plan. So that is the scope of the logic of -- and therefore, about the issuing of share, etc. is something we'll decide, but we understand that there is no need to have a strong capitalization of the new company.

Biraj Borkhataria -- RBC -- Analyst

Okay. Thank you.

Operator

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

Alastair Syme -- Citi -- Analyst

Hi, Francesco. S&P still have a negative outlook on the debt and they have been for quite a while. So I'm just -- I'm sure it doesn't impact where your price have gone. But at the same time, I'm sure you will be downgraded. So maybe just talk about what you think you need to do to get that changed? And then secondly, do you have any observations on the strength of the Upstream M&A market, as you look toward crystallizing this value involved and potentially also Angola. We seem to sense a recent deal that have gone through quite cheaply. So, I'm just wondering, if you're seeing anything different on that? Thank you.

Francesco Gattei -- Chief Financial Officer

Thank you. About the Standard and Poor's rating, actually today there is -- there was a positive rating. The negative outlook was erased to, let's say, neutral outlook. So the company is recognizing that the action taken in this years, the financial flexibility and importance of the balance sheet were successful. So I think this is a positive sign for us. And this will help also to reduce in the future the cost of that. On the other side, you said that about the environment term of M&A, we are very active in M&A, particularly we're working on, again in the M&A, that is trying to extract value from our portfolio. We have different, let's say, processes ongoing. And I think that the market reaction clearly is subject to the quality of the asset that you're presenting to the market. So there is a positive market, there is, probably not the same actors or players that you are used to have in this kind of market, but in term of player -- independent player, infrastructure funds, private equity player, there is an active market.

Alastair Syme -- Citi -- Analyst

Thank you. And thank you for the update on the S&P rating.

Operator

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

Lucas Herrmann -- Exane BNP Paribas -- Analyst

Thanks very much. And thanks for today's presentation. Can I just go back to Angola and there have obviously been some comments on the level of debt that you are looking to raise, which I think indicated something of the order of $2 billion. I wonder if you can make any comments on that and what kind of rates of interest that's in that market on oil assets you like to attract? And beyond that, just thinking about going back to the LNG business, forgive my confusion, the improvement -- how much of the improvement that you're talking about through the final quarter of this year is a consequence of renegotiation? And how much of it's reflective of what actually should be a much better market for your opportunities as you go to arbitrage of the LNG volumes that are coming out of your business? Thanks very much.

Francesco Gattei -- Chief Financial Officer

Yes, about the business combination in Angola, you know that there was -- see, there are these comment related to potential interest in term of bank capability in the range between EUR2 billion to EUR2.5 billion. And the interest clearly is something that have to be defined at the time you do the raising of the debt. I would say it is too early now to know what is the cost of capital for this debt. So I think this is -- what we can give you is the appetite and the size of the financial system. In term of the other question, I will pass the ball to Cristian.

Cristian Signoretto -- Deputy Chief Operating Officer, Natural Resources

So, thanks for the question. So I think, I'd say that most of the improved results are linked to the one-off upsides deriving from the contract renegotiations. And I would say also the extreme condition of the Gas and LNG markets that, as you can see starting from September experienced record price levels across the globe, which, if you want, triggered the opportunity for us to use options that were deeply out of the money before. And that became in the money with this level of prices. So I mean to -- if I have to, let's say, to give you an idea, I would say that around probably 30% would be structural that is linked to the fact that we have renegotiated the contract. So we have shy away from lease that we had before. And probably 60%, 70% instead is linked to one-off opportunities that we grab, linked to the renegotiations, as I said, or linked to the -- this extreme level of prices that allowed us to trigger such out-of-the-money options.

Lucas Herrmann -- Exane BNP Paribas -- Analyst

Okay. And just going back to Angola, can you say anything about progress in potential timing over and above that you have?

Francesco Gattei -- Chief Financial Officer

I would say that substantially the teams are working up. I think that there is a quite positive view and we are very close in the discussion. You know that as we mentioned also during the presentation, it's something that is expected to be completed -- once I speaking about completed, I also referring to the fact that you have to collect, therefore, the authority approval etc., so early next year. It means that we are targeting for completion of the shareholder agreement within the two companies within the end of the year.

Lucas Herrmann -- Exane BNP Paribas -- Analyst

And would we expect any dividend payouts around that time or subsequent to that event, much the same way that was case with Var?

Francesco Gattei -- Chief Financial Officer

Yes, I think that we have to -- first of all, to have the company established, it will clearly, as I mentioned, up in next year. Once it will be established there will be also the capability to raise fund and they will also -- the company will decide these financial plans including the distribution policy.

Lucas Herrmann -- Exane BNP Paribas -- Analyst

Thank you very much.

Operator

The next question is from Mehdi Ennebati of Bank of America. Please go ahead.

Mehdi Ennebati -- Bank of America -- Analyst

Hi. So, good afternoon all and thanks for taking my question. Congratulations for those quite impressive figures. Two questions please on my side. First one on your cash flow from operation, which was pretty strong. So if I look at, let's say, the differential between or the spread between the tax that you paid and the tax that you've announced, I guess, that this spread has been increasing in such a way that segment did not really increase in Q3 compared to Q2 despite the much higher profitability. So my question is, is there -- should I expect a kind of catch-up in the coming quarters? Meaning that your tax payment will accelerate faster than the tax you declare in the P&L knowing that that will be a negative impact on the cash flow from operation?

And you also highlighted on your report that you benefited from a relatively high amount of trade receivables this quarter. So I wanted to know did this impact your working capital or did this impact your cash flow from operation, excluding the working capital?

And the second question is about the current LNG price environment. When Damietta LNG [Indecipherable] you told us that you'll be able to sell the LNG you have as per price EBITDA. And I was expecting that you'll try to take advantage of the current strong LNG price environment. So, can you tell us why or first, if you benefited from Damietta LNG? And can you also tell us if you expect Damietta profitability to increase given that LNG prices are currently higher than on average in the first quarter? Thank you.

Francesco Gattei -- Chief Financial Officer

Okay. About the tax rate of the -- tax, let's say, fluctuation within the third and the last quarter and the next quarter, as I mentioned, is that the tax rate is impacted by the mix of our results and particularly by the fact that now there is a significant and clear contribution of value coming from certain countries and certain regions with low tax rate. So there is no shift or factor related to postponement of payment that will impact cash flow next quarter. So everything is substantially based on traditional tax payment. It would depend clearly on the capability of this business component to continue to generate value as in the last -- in the third quarter.

And about the working capital, clearly, it is -- the working capital is also affected -- mainly affected by the value of stocks and receivables, clearly in an environment of prices that is growing, you will see that quantity -- similar quantity level, an increase of your working capital. This clearly will impact your cash flow from operation, post working capital.

About Damietta, I leave again to Cristian for that.

Cristian Signoretto -- Deputy Chief Operating Officer, Natural Resources

So, thanks for the question. Let me start from maybe a portfolio type of considerations. So in 2021, the vast majority of our LNG cargoes are either sold under term agreements, which are substantially not affected by the current level of spot prices, or are directly etched with our customer base in Europe. We have some leisure leverage, though, on the optimization of the portfolio, especially by rerouting our FOB cargoes to capture the arbitrage between the markets. And Damietta clearly is part of this portfolio because I mean being an FOB contract, we can divert the cargoes where the market is asking them to pay higher price.

From 2022 onwards, we have a growing exposure to the spot market that clearly we will take into account in our, let's say, in marketing strategy, including also from Damietta.

Mehdi Ennebati -- Bank of America -- Analyst

Perfect. Thank you very much, both of you.

Operator

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

Henry Tarr -- Berenberg -- Analyst

Hi, there. And thanks for taking my questions. Two, please. One just on capex looking into 2022. So with commodity prices where they are, is there a temptation to start looking at slightly higher capex in some of the E&P areas and do you have sort of short cycle options that you're looking at there? So would you expect to see capex start to increase a little bit in 2022? And then just secondly, I think you talked about the feedstock for the sustainable aviation fuel in Africa. I maybe missed it. Were you saying cost of oil in the Congo? Is that right? And are you hoping to source all of your sort of raw materials in that way? And perhaps, just a little bit more color around how that's knocking-- the line there is being used for feed. That would be great.

Francesco Gattei -- Chief Financial Officer

Okay. About capex, you know that we have a plan, actually we're quite disciplined in all the period that we passed through since 2014. Remember we kept capex flat. So we will not follow the price volatility. We have a plan. In our plan, we are assuming to have a capex of around EUR5 billion last year, EUR6 billion this year, that is a rebound clearly and EUR7 billion as a, let's say, steady level in all our business to perform the transformation clearly. So that is substantially the level that we are targeting and we are not clearly, let's say, changing the guidance. We will continue to be disciplined on investment and in terms of aviation fuel.

Giuseppe Ricci -- Chief Operating Officer, Energy Evolution

About the feedstock for the SAF, for the fuel, the sustainable aviation fuel, you have to take into account that we are considering also waste stream residue as feedstock for this particular fuel. And in fact, our early production is coming from UCO, used cooking oil. The development of feedstock that we are foreseeing in Africa and other countries, thinking that our knowledge of presence in these countries, is based on both agriculture, but not in competition of food, and waste stream residue collection.

Henry Tarr -- Berenberg -- Analyst

Okay. Thanks.

Operator

The last question is from Oswald Clint of Bernstein. Please go ahead, sir.

Oswald Clint -- Bernstein -- Analyst

Thank you. Yeah. So perhaps just another one on the Upstream. The natural gas realizations in the Upstream. They seemed particularly strong, I think at least relative to what I was expecting. So I just wondered anything helping those? I mean, do you let any of the global gas business price strength accrue back into the Upstream through transfer pricing and/or anything that explains that, if I am correct there? And then secondly, I just wanted to ask, I mean, all your metrics around ESG are pretty impressive, MSCI, Euronext, Sustainalytics. And I wanted to ask if you could tell us, are you seeing an increase in ESG investors into your shareholder base? I mean, down in Spain, Repsol was saying that 32% in the shareholder base today and the industry is around 15%. So I'm just curious if you have good knowledge or seeing increases in that type of investor into your shareholder base. Thank you.

Francesco Gattei -- Chief Financial Officer

I think that about the gas realization, the gas increase, I would say that is mainly today the fact that the spot pricing increase, PSV, and clearly NBP price are the main reasons for this jump. So there is no other explanation. The component of oil link, the reference within the spot formula is existing, but is not the major factor that is playing the change. About ESG, actually, I think that is difficult to say what is ESG. Once you have many large fund, then you can consider this fund ESG, because all -- practically almost all the investors have an ESG component. So we haven't done this kind of split. I think that if company will do the split, it will go in different metrics. There is no benchmark including act with different degree of flexibility the ESG component within the investor group. So I would say that, what we can see is that Eni is top ranker there in all Var ESG metrics, has a solid decarbonization plan. And we were the first oil and gas company to issue a sustainable-linked bond. So this is means that in term of ESG, analysts from our side and the bondholders are buying Eni tools. So that is, for me, the most important driver of KPI in following.

Oswald Clint -- Bernstein -- Analyst

Obviously -- fantastic. Thank you. Francesco.

Operator

Mr. Gattei, do you have any closing remarks, sir?

Francesco Gattei -- Chief Financial Officer

No. Thank you. Thank you to all. We have completed the conference call. And if you have any additional questions, we are available with our Investor Relations team. Thank you.

Operator

[Operator Closing Remarks]

Duration: 72 minutes

Call participants:

Francesco Gattei -- Chief Financial Officer

Cristian Signoretto -- Deputy Chief Operating Officer, Natural Resources

Alberto Chiarini -- Chief Executive Officer, Eni gas e luce SpA

Giuseppe Ricci -- Chief Operating Officer, Energy Evolution

Alessandro Puliti -- Chief Operating Officer, Natural Resources

Adriano Alfani -- Chief Executive Officer, Versalis

Giacomo Romeo -- Jefferies -- Analyst

Michele Della Vigna -- Goldman Sachs -- Analyst

Massimo Bonisoli -- Equita SIM -- Analyst

Bertrand Hodee -- Kepler Cheuvreux -- Analyst

Jason Kenney -- Banco Santander -- Analyst

Jon Rigby -- UBS -- Analyst

Ellis Skinner -- J.P. Morgan -- Analyst

Irene Himona -- Societe Generale -- Analyst

Biraj Borkhataria -- RBC -- Analyst

Alastair Syme -- Citi -- Analyst

Lucas Herrmann -- Exane BNP Paribas -- Analyst

Mehdi Ennebati -- Bank of America -- Analyst

Henry Tarr -- Berenberg -- Analyst

Oswald Clint -- Bernstein -- Analyst

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