Executive Summary / Key Takeaways

• Eni is executing a transformative strategy, leveraging its "satellite model" to unlock value from both traditional upstream and new energy transition businesses like Enilive, Plenitude, and CCUS, attracting significant external capital and strengthening its balance sheet to historic lows.
• The company is demonstrating robust financial performance, with Q2 2025 pro forma EBIT of €2.4 billion and H1 2025 cash flow before working capital of €6.2 billion, while projecting a 40% growth in CFFO by 2030 and materially improved return on capital employed.
• Eni's technological leadership in floating LNG, advanced biorefining (processing 100% waste/residues), and CO2 capture (Ravenna project capturing over 90%) provides a competitive moat, enabling efficient operations and positioning the company for growth in decarbonization markets.
• Aggressive portfolio high-grading and a disciplined capital allocation approach, including a lowered gross CapEx guidance of under €8.5 billion for 2025 and a minimum €1.5 billion share buyback program, underscore a strong commitment to shareholder returns.
• The ongoing restructuring of the Versalis chemicals segment, targeting positive EBIT by 2027 and free cash flow breakeven by 2028, represents a significant internal lever for future profitability, mirroring the successful transformation of its traditional refining business.

Eni's Strategic Transformation: A Blueprint for Integrated Energy Leadership

Eni S.p.A., an integrated energy company founded in Rome in 1953, is executing a profound strategic transformation designed to thrive in a volatile global energy landscape. The company's core business spans exploration and production of crude oil and natural gas, refining, chemicals, and a rapidly expanding portfolio of energy transition businesses. Eni's overarching strategy centers on delivering efficient, competitive growth in its upstream operations, integrating its equity gas into the burgeoning LNG chain, and building new, competitively advantaged energy businesses focused on end-product decarbonization. This includes significant investments in sustainable mobility (Enilive), renewable energy and retail solutions (Plenitude), and carbon capture, utilization, and storage (CCUS).

The company's historical journey provides critical context for its current strategic responses. Over a decade ago, Eni initiated a significant shift in its refining operations towards biorefining, a move that successfully evolved into the creation of Enilive. This proactive transformation aimed to reduce exposure to the traditional European refining market and diversify into higher-value areas. This foundational experience in industrial transformation now serves as a blueprint for the ambitious restructuring of its chemicals business, Versalis. Eni's strategic agility is further exemplified by its distinctive "satellite model," introduced around 2022, which has proven effective in enhancing organizational strength, attracting external capital, and accelerating growth across its diverse portfolio.

The broader energy industry is undergoing a profound transition, driven by decarbonization mandates and increasing demand for reliable, sustainable energy. Global trends, such as the growing demand for energy infrastructure fueled by AI and data centers, underscore the need for diversified and resilient energy supply. Regulatory shifts, like Germany's proposed Renewable Energy Directive III aiming for a 25% GHG reduction by 2030 and the elimination of double-counting feedstock, signal a significant uplift in biofuel demand. Similarly, the U.S. EPA's proposed 50% step-up in renewable volume obligations for 2026 and California's increased Low Carbon Fuel Standard (LCFS) targets from 13% to 22% GHG reduction starting July 1, 2025, are creating substantial market opportunities for sustainable fuels. Eni's strategic positioning, underpinned by its technological advantages, aims to capitalize on these macro trends, differentiating itself from competitors and securing long-term value.

Technological Edge: Fueling Efficiency and Decarbonization

Eni's competitive advantage is significantly bolstered by its differentiated technologies across its core and transition businesses. These innovations are not merely incremental improvements but foundational elements driving efficiency, cost advantages, and market leadership.

In its upstream operations, Eni is a recognized leader in floating LNG (FLNG) technology. This expertise enables the company to unlock substantial resources from associated gas or deepwater discoveries located far from shore. The tangible benefit is a faster time-to-market and lower infrastructure costs compared to traditional onshore LNG facilities, allowing Eni to monetize gas resources that might otherwise be uneconomical. The Congo LNG project, for instance, leverages this technology, with the second floating LNG unit expected to come on stream in the second half of 2025. This technological edge directly contributes to Eni's strategy of integrating its equity gas into the LNG chain to maximize value, providing a competitive advantage over rivals relying solely on conventional LNG infrastructure.

Within its Enilive segment, Eni's biorefining technology stands out. The company's biorefineries are designed to process 100% waste and residues, offering high flexibility to shift between Sustainable Aviation Fuel (SAF) and Hydrotreated Vegetable Oil (HVO) production based on market demand and value pools. This capability is crucial in a volatile biofuels market, allowing Enilive to optimize margins and respond swiftly to regulatory mandates and customer preferences. The new 400,000 ton per year SAF facility at Gela, Sicily, which began production in early 2025, and the planned biorefineries in South Korea and Malaysia, exemplify this technological leadership. The rephasing of biorefining capacity to reach 3 million tonnes by 2027 underscores a commitment to state-of-the-art capabilities that maximize value creation. This technological prowess provides Enilive with a distinct advantage over competitors with less flexible or waste-agnostic biorefining processes, contributing to more stable and higher profitability.

Eni is also at the forefront of Carbon Capture, Utilization, and Storage (CCUS) technology. The Ravenna project in Italy, which commenced its first CO2 injection in Q3 2024, is capable of capturing over 90% of CO2 emitted from upstream plants, even from streams with less than 3% concentration. This demonstrates the technology's effectiveness in minimizing emissions, particularly from hard-to-abate industries. The company's CCUS model leverages existing facilities and depleted reservoirs, which significantly reduces capital intensity compared to greenfield projects. This approach, combined with the ability to capture high percentages of CO2, positions Eni as a cost-effective and technologically advanced provider in the nascent but critical CCUS market. The exclusivity agreement with GIP for a 49.99% stake in CCUS activities, expected to close in H2 2025, highlights external validation of this technological advantage and its potential for substantial value creation.

These technological differentiators are central to Eni's competitive moat. They enable the company to achieve lower operating costs, higher asset utilization, and greater flexibility in product offerings, directly impacting its financial performance through improved margins and sustained growth. The continuous investment in R&D, as evidenced by the expansion of biorefining and CCUS projects, ensures that Eni remains at the leading edge of energy innovation, solidifying its market positioning and long-term growth strategy in the evolving energy landscape.

Strategic Initiatives and Business Model Evolution

Eni's strategic initiatives are deeply intertwined with its innovative "satellite model," a framework designed to unlock value, foster growth, and enhance financial resilience. This model involves creating semi-autonomous entities for specific business segments, attracting external, aligned capital, and ultimately preparing these entities for potential market valorization, including IPOs. This approach has been successfully deployed across various segments, including Vår Energy (VAR), Azule Energy, Ithaca Energy (ITH), Enilive, Plenitude, and is now being extended to CCUS and a new upstream combination with Petronas.

In the upstream sector, the satellite model has facilitated portfolio high-grading and accelerated growth. The combination of Eni's UK assets with Ithaca Energy has created one of the largest independent players in the UK North Sea. Similarly, the framework agreement with Petronas in June 2025 to combine assets in Indonesia and Malaysia is set to create a leading regional player in Asian LNG. This venture, Eni's largest upstream satellite to date, is expected to combine 19 blocks across both countries, targeting 5 FIDs in 2026 and 4 more in subsequent years. Gross production is anticipated to exceed 300,000 barrels per day at closing, with a prospect of over 500,000 barrels per day in 4-5 years, underpinned by over 10 billion barrels of estimated unrisked resources. This strategic partnership leverages Petronas's local knowledge and Eni's fast-track project operator expertise, particularly in floating LNG, to maximize value from significant resources like the Vaca Muerta basin in Argentina, where an LNG project with YPF (YPF) is targeting FID by Q1 2026.

The transition businesses, Enilive and Plenitude, are prime examples of the satellite model's success in attracting aligned capital and driving growth. KKR's (KKR) investment, topping up its stake in Enilive to 30% with €601 million in April 2025, followed an earlier €2.96 billion in March 2025, valuing Enilive and Plenitude at a combined enterprise value of approximately €22 billion. Similarly, Ares's (ARES) €2 billion investment for a 20% stake in Plenitude, valuing it at around €12 billion, is expected to close by year-end 2025. These investments not only provide substantial cash inflows but also validate the market's recognition of the value created in these integrated chains of retail consumption and sustainable mobility. Plenitude is expanding its renewable capacity, projected to grow over 30% year-on-year to more than 5.5 gigawatts net in 2025, and recently made a binding offer for Acea Energia, aiming to expand its customer base by over 10%.

The restructuring of Versalis, Eni's chemicals segment, is another critical strategic initiative. Facing structural disadvantages in European basic chemicals manufacturing, Versalis is undergoing a transformation to focus on a high-value downstream portfolio, biochemistry, and circular economy solutions. This includes the closure of steam crackers at Brindisi (March 2025) and Priolo (July 2025), ahead of schedule, which are expected to yield positive effects of €90-100 million in H2 2025 and €250 million annually from H2 2026. New investments of approximately €2 billion over five years are planned to develop new platforms, such as a biorefinery for SAF and a chemical recycling plant at Priolo, and a new factory for stationary networked batteries at Brindisi. This ambitious plan aims to bring Versalis to positive EBIT by 2027 and free cash flow breakeven by 2028, mirroring the successful turnaround of Eni's refining operations.

Financial Performance and Health

Eni's financial performance in the first half of 2025 demonstrates strong execution of its strategy, exceeding initial plans in key areas. The company reported Q2 2025 pro forma EBIT of €2.4 billion, contributing to a robust H1 2025 cash flow before working capital of €6.2 billion. This reflects an efficient conversion of earnings into cash, a consistent trend for the company. For the full year 2025, Eni expects CFFO to reach €11.5 billion, a €0.5 billion increase from its Q1 outlook and €0.5 billion higher on an underlying basis than its original guidance. This upward revision underscores management's confidence in operational outperformance and a favorable scenario.

Profitability metrics highlight the strength of Eni's diversified segments. The Upstream (E&P) segment delivered Q2 2025 EBIT of approximately €1.7 billion, with production at 1.67 million barrels per day, in line with guidance. The Global Gas & LNG Portfolio (GGP) is also a significant contributor, with its full-year 2025 pro forma EBIT now projected at around €1 billion, benefiting from contract renegotiations and a sustained trading environment. Enilive and Plenitude, the key transition businesses, remain on track to meet their combined full-year EBITDA guidance, with Plenitude showing a 12% increase in Q2 2025 pro forma EBIT year-over-year. While the Chemicals (Versalis) segment remains loss-making, its results showed a quarter-on-quarter improvement in Q2 2025, with positive impacts from the restructuring plan anticipated in the second half of the year. Refining operations also improved in Q2 2025 due to better margins, despite some asset downtime.

Eni's balance sheet strength is a cornerstone of its financial strategy. Net debt fell to €10.2 billion in Q2 2025, €2 billion lower than year-end 2024. Pro forma leverage, incorporating agreed transactions, stood at 10% (equivalent to 9% net debt to capital), marking "the lowest level in our history." This robust financial position is supported by over €28 billion in financial assets and undrawn committed lines, with a net cost of debt expected below 1.5% in 2025. The company has also identified €3 billion in cash initiatives for 2025, including working capital management and cost efficiencies, further enhancing its free cash flow.

Capital allocation remains disciplined. Gross CapEx for 2025 is guided to be under €8.5 billion, with net CapEx expected below €6 billion, thanks to strategic valorizations and external investments in its satellite businesses. Eni's commitment to shareholder returns is paramount, with a competitive euro-denominated dividend growing at over 5% per year and a share buyback program. The company repurchased €0.66 billion in H1 2025, with the 2025 program targeting €1.5 billion, which management views as a floor with potential for further increases. This strong financial health provides Eni with the resilience and flexibility to pursue its strategic objectives and deliver attractive returns to investors amidst market volatility.

Competitive Landscape and Positioning

Eni operates in a highly competitive global energy market, facing direct competition from integrated energy majors such as BP p.l.c. (BP), TotalEnergies SE (TTE), and Royal Dutch Shell plc (SHEL). Its market positioning is that of a major integrated player with a strong European base, allowing it to compete effectively in both traditional and emerging energy markets.

In the upstream sector, Eni's focus on exploration success and portfolio high-grading, particularly in regions like the Mediterranean and Africa, provides a regional advantage. Its leadership in floating LNG technology offers a cost-effective and rapid development solution for gas resources, differentiating it from competitors who may rely more on conventional, capital-intensive LNG infrastructure. While competitors like Shell and TotalEnergies possess broader global footprints and potentially larger R&D budgets for certain low-carbon technologies, Eni's integrated approach and localized expertise in high-potential regions like Indonesia and Namibia allow for efficient operational execution. The Petronas combination in Asia, for instance, is set to create a leading regional player, leveraging local partnerships to accelerate growth in a dynamic gas market.

In the transition businesses, Enilive and Plenitude, Eni's integrated value chain provides a distinct competitive edge. Enilive's ability to process 100% waste and residues in its biorefineries and its captive retail market for biofuel distribution offer a more stable margin profile compared to competitors more exposed to volatile feedstock prices or relying solely on wholesale markets. Plenitude's rapid expansion in renewable capacity and its growing retail customer base position it strongly in the European energy transition, competing with players like Orsted (DNGRY) in offshore wind or even tech giants like Google (GOOGL) and Microsoft (MSFT), who are increasingly driving demand for clean energy for their data centers. Eni's CCUS initiatives, leveraging existing infrastructure and depleted reservoirs, offer a cost-efficient solution for industrial decarbonization, potentially outpacing competitors in speed and cost-effectiveness in regulated markets like the UK.

However, Eni faces competitive disadvantages, including exposure to oil price volatility, which can impact its financial performance. While its diversified segments provide some buffer, larger global players like Shell might have a more stable cost structure due to their sheer scale and broader geographical diversification, potentially allowing them to absorb price swings more effectively. Eni's speed of innovation and global reach in certain advanced low-carbon technologies might also lag behind some of its more aggressively transitioning peers.

Eni's strategic response to these competitive forces is multifaceted. The satellite model allows it to attract specialized capital and partners, sharing risks and accelerating growth in capital-intensive new energy ventures. This model also enables faster decision-making and more focused execution compared to a monolithic corporate structure. By focusing on integrated projects and leveraging its proprietary technologies, Eni aims to maintain its competitive position, enhance profitability, and drive long-term value creation in an increasingly complex and competitive energy landscape.

Outlook and Guidance

Eni's outlook for the coming years is characterized by ambitious growth targets, disciplined capital allocation, and a strong commitment to shareholder returns, all underpinned by its evolving strategic framework. The company anticipates a significant increase in its cash flow from operations (CFFO), projecting approximately 40% growth by 2030. This growth is expected to materially enhance its return on capital employed, reinforcing the company's financial strength.

In the upstream segment, Eni expects its full-year 2025 production to be around 1.7 million barrels per day, with Q3 production specifically guided between 1.7 million and 1.72 million barrels per day, reflecting seasonal maintenance. This growth will be driven by major project start-ups, including Agogo NGC in Angola and the second floating LNG in Congo in H2 2025, building on the successful launches of Johan Castberg and Balder X in Norway earlier in the year. The Petronas combination in Indonesia and Malaysia is a key long-term growth driver, targeting gross production of over 300,000 barrels per day at closing (expected end of 2025) and potentially over 500,000 barrels per day within 4-5 years, supported by over 10 billion barrels of unrisked resources.

The Global Gas & LNG Portfolio (GGP) is expected to deliver a strong performance, with full-year 2025 pro forma EBIT now projected at around €1 billion, benefiting from contract renegotiations and a favorable trading environment. Eni's long-term target for LNG is to reach 20 million tonnes per annum.

Enilive and Plenitude, the transition businesses, are poised for substantial growth. Their combined EBITDA is expected to nearly triple between 2024 and 2030. Plenitude's renewable capacity is forecast to grow by over 30% year-on-year in 2025, reaching over 5.5 gigawatts net (or more than 7 gigawatts gross). The acquisition of Acea Energia, expected to close by H1 2026, will further expand Plenitude's customer base. Enilive's biorefining capacity is being rephased to reach 3 million tonnes by 2027, aligning with anticipated increases in biofuel demand driven by mandates like Germany's RED III and the U.S. EPA's renewable volume obligations.

The Versalis chemicals segment is undergoing a critical transformation, with management targeting positive EBIT by 2027 and free cash flow breakeven by 2028. This turnaround is expected to contribute almost €1 billion in EBIT improvement by 2030, driven by the closure of inefficient crackers and investments in new, high-value platforms. The CCUS business is also set for significant expansion, aiming for over 15 million tonnes of capacity by 2030 and over 40 million tonnes in the 2030s, with the GIP stake sale expected in H2 2025.

Financially, Eni is committed to maintaining its pro forma leverage between 15% and 20% in 2025. Gross capital expenditure for 2025 is guided to be under €8.5 billion, with net CapEx below €6 billion, reflecting efficient capital management and strategic valorizations. The company's shareholder distribution policy remains a top priority, with a competitive dividend and a share buyback program of at least €1.5 billion for 2025, with potential for further increases based on strong performance and balance sheet strength. The cash tax rate for 2025 is expected to be closer to 50%, a reduction from previous estimates, driven by the positive impact of transforming loss-making assets.

Risks and Challenges

Despite a compelling strategic vision and strong execution, Eni faces several pertinent risks and challenges that could impact its investment thesis.

Firstly, market volatility remains a significant concern. Fluctuations in crude oil and natural gas prices, as well as biofuel margins, can directly affect profitability and cash flow generation. While Eni's diversified portfolio and integrated value chains offer some resilience, sustained downturns in commodity prices or prolonged oversupply in specific markets, such as biofuels, could pressure financial performance. The European chemicals industry, in particular, faces structural disadvantages and a "grim outlook" with no meaningful economic recovery expected in 2024 or 2025, posing a persistent challenge for the Versalis segment despite ongoing restructuring efforts.

Secondly, geopolitical risks in key operating regions could disrupt production and supply chains. While Eni has a strong presence in Africa and the Mediterranean, political instability or changes in regulatory regimes, such as the U.S. sanctions impacting operations in Venezuela, can create uncertainties regarding payment for production or the ability to lift crude cargoes. The energy crisis in Egypt, despite recent positive economic signals and increased investment, still presents potential challenges for gas supply and export dynamics.

Thirdly, the successful execution of large-scale transformation plans carries inherent risks. The ambitious restructuring of Versalis, involving plant closures, workforce adjustments, and significant investments in new technologies, requires precise execution to achieve its profitability targets by 2027-2028. Delays in project development, unforeseen costs, or slower-than-expected market adoption of new products could impact the projected financial benefits. Similarly, the ramp-up of new upstream projects and the integration of large-scale satellite ventures like the Petronas combination require seamless operational delivery to meet production targets.

Finally, while Eni's satellite model is a strength, managing a growing number of semi-autonomous entities and ensuring strategic alignment across diverse partners (national oil companies, trading firms, private equity funds) adds a layer of organizational complexity. Maintaining control, fostering collaboration, and ensuring consistent value creation across these ventures will be crucial for the model's continued success.

Conclusion

Eni is charting a compelling course as an integrated energy company, strategically transforming its portfolio to deliver sustainable growth and enhanced shareholder returns. The company's unique "satellite model" is proving to be a powerful engine for value creation, attracting significant external capital and enabling focused development across its upstream and transition businesses. This approach, coupled with Eni's technological leadership in areas like floating LNG, advanced biorefining, and CO2 capture, provides a robust competitive foundation in an evolving energy landscape.

Eni's strong financial performance, characterized by robust cash flow generation, a rapidly deleveraging balance sheet, and a commitment to progressive shareholder distributions, underscores the effectiveness of its strategy. The ambitious restructuring of Versalis, mirroring past successes in refining, highlights a proactive approach to addressing underperforming assets and unlocking future profitability. While market volatility and geopolitical risks persist, Eni's strategic agility, technological prowess, and disciplined capital allocation position it favorably. For discerning investors, Eni represents a compelling opportunity to participate in the growth of a diversified energy leader, poised to capitalize on both traditional and new energy frontiers through its innovative and resilient business model.