Eni bets on energy transition profits to match oil and gas by 2035

Italian oil major sticks with ‘satellite’ strategy for low-carbon units as others pull back

Italian oil major Eni expects profits from its green businesses to rival those from oil and gas within a decade, in a bold bet that contrasts with a retreat from renewables by Shell and BP after lacklustre returns.

“By 2035, the [operating profit] created by our new companies will balance what is coming from oil and gas, in 2040 it will be more [than oil and gas],” Claudio Descalzi, Eni’s chief executive, told the Financial Times.

The prediction underlines Descalzi’s commitment to Eni’s low-carbon energy businesses even as other oil and gas companies are scaling back and refocusing on fossil fuels.

Earnings from Eni’s oil and gas business are still more than 10 times those from biofuels unit Enilive and renewables division Plenitude, the company’s two standalone transition businesses.

At its results last week, Eni said that operating profit — or earnings before interest and tax — from the two businesses was €598mn in the first half, down 15 per cent on the same period last year. Meanwhile, operating profit from exploration and production and from Eni’s gas and power unit was €6.6bn.

The two subsidiaries, created in 2022 and 2023, are not purely green businesses. Eni chose to combine its growing, but unprofitable, clean energy interests with cash-generating assets that could fund the expansion of the new companies.

“I believe growth is important, but you can also have a bubble. To grow, you have to invest, and your free cash flow is always negative,” explained Descalzi. “Investors can believe you for one, two, three, four years but then bang, it is finished.”

Enilive combines biofuel refineries with a 5,000-strong petrol station network, while Plenitude integrates renewable power generation and EV charging with residential gas and power sales.

Critically, these hybrid companies — which Eni calls “satellites” — were profitable from the outset and have annual earnings before interest, tax, depreciation and amortisation of around €1bn each.

Descalzi has also sold minority stakes in both businesses to private equity investors, including KKR and Energy Infrastructure Partners.

The deals valued the new businesses at a combined €22bn, or almost half Eni’s current market capitalisation. Eni said it had realised about €3.8bn in cash from outside investments into Enilive and Plenitude in the first half of the year. The Italian group has also formed a joint venture with Global Infrastructure Partners, an arm of BlackRock, to run its carbon capture and storage business.

“The capital is there and infrastructure funds are looking for good businesses, but they want to understand what is inside. Growth alone is not enough,” said Descalzi.

“The [energy] transition has been super useful” in allowing him to start to delink Eni’s future from volatile oil prices, he said, adding that other western oil companies need to forget their past and reinvent themselves.

Eni’s so-called satellite strategy contrasts with Shell and BP, which have slowed renewable investments after struggling to make a return on their sizeable investments.

“The absence of change was somewhat remarkable in a year when many of Eni’s peers scaled back their ambitions and investments in low carbon,” HSBC analysts said after Eni released its latest three-year plan in February.

“The strategy has clearly created value, and oil majors creating value in energy transition is definitely not a given,” said Biraj Borkhataria, analyst at RBC Capital Markets.

“It is a unique way of approaching it, and there is a clear rationale. I was sceptical at first, thinking it was too complicated. But then, can you distil the energy transition into a very simple pitch? It is complicated,” he added.

Other analysts have argued that the satellite strategy, which also includes several oil and gas joint ventures, adds complexity to Eni’s pitch to investors.

These include Var, a listed joint venture in Norway, Ithaca in the UK, Azule, an unlisted joint venture in Angola with BP, and a new joint venture in Asia with the Malaysian energy company Petronas.

Descalzi said these satellites had helped Eni expand without having to do mergers and acquisitions. “We don’t have all this money [compared to other oil majors]. I cannot do M&A. But if I have 100 per cent of a block [in an oil basin], I can exchange barrels,” he said.

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