Derivative financial instruments and hedge accounting

12 Months Ended

Dec. 31, 2023

Derivative financial instruments and hedge accounting

Derivative financial instruments and hedge accounting

24 Derivative financial instruments and hedge accounting

	December 31, 2023					December 31, 2022
(€ million)	Fair value asset		Fair value liability		Level of Fair value	Fair value asset		Fair value liability		Level of Fair value
Non-hedging derivatives
Derivatives on exchange rate
- Currency swap	70		168		2	110		132		2
- Interest currency swap			84		2	1		144		2
- Outright						3		12		2
	70		252			114		288
Derivatives on interest rate
- Interest rate swap	62		34		2	137		58		2
	62		34			137		58
Derivatives on commodities
- Over the counter	2,902		2,103		2	9,571		8,663		2
- Future	3,027		2,905		1	6,886		5,764		1
- Options	106		114		2			2		1
- Other	11				2			80		2
	6,046		5,122			16,457		14,509
	6,178		5,408			16,708		14,855
Cash flow hedge derivatives
Derivatives on commodities
- Over the counter	80		13		2
- Future						339		192		1
	80		13			339		192
Derivatives on interest rate
- Interest rate swap	6				1	21				2
	6					21
	86		13			360		192
Options
- Other options			41		2			144		3
			41					144
Gross amount	6,264		5,462			17,068		15,191
Offsetting	(2,895	)	(2,895	)		(5,863	)	(5,863	)
Net amount	3,369		2,567			11,205		9,328
Of which:
- current	3,323		2,414			11,076		9,042
- non-current	46		153			129		286

Eni is exposed to market risk, which is the risk that changes in prices of energy commodities, exchange rates and interest rates could reduce the expected cash flows or the fair value of the assets. Eni enters into financial and commodities derivatives traded on organized markets (like MTF and OTF) and into commodities derivatives traded over the counter (swaps, forward, contracts for differences and options on commodities) to reduce this risk in relation to the underlying commodities, currencies or interest rates and, to a limited extent in compliance with internal authorization thresholds, with speculative purposes to profit from expected market trends.

Derivatives fair values were estimated based on market quotations provided by primary info-provider or, alternatively, appropriate valuation techniques generally adopted in the marketplace.

Fair values of non-hedging derivatives essentially comprised forward sale contracts of natural gas for physical delivery which were not entitled to the own use exemption, as well as derivatives for proprietary trading activities.

Fair value of cash flow hedge derivatives essentially related to commodity hedges were entered into by the Global Gas & LNG Portfolio segment. These derivatives were entered into to hedge variability in future cash flows associated with highly probable future trade transactions of gas or electricity or on already contracted trades due to different indexation mechanisms of supply costs versus selling prices. A similar scheme applies to exchange rate hedging derivatives. The existence of a relationship between the hedged item and the hedging derivative is checked at inception to verify eligibility for hedge accounting by observing the offset in changes of the fair values at both the underlying commodity and the derivative. The hedging relationship is also stress-tested against the level of credit risk of the counterparty in the derivative transaction. The hedge ratio is defined consistently with the Company’s risk management objectives, under a defined risk management strategy. The hedging relationship is discontinued when it ceases to meet the qualifying criteria and the risk management objectives on the basis of which hedge accounting has initially been applied.

The effects of the measurement at fair value of cash flow hedge derivatives are given in note 26 – Equity. Information on hedged risks, the hedging policies are disclosed in note 28 – Guarantees, commitments and risks - Risk factors.

Eni entered into sustainability-linked interest rate swaps with leading banking institutions which provide for a cost adjustment mechanism linked to the achievement of certain sustainability targets. At December 31, 2023, the fair value of these contracts amounted to positive €15 million.

In 2023, the exposure to the exchange rate risk deriving from securities denominated in U.S. dollars included in the strategic liquidity portfolio amounting to €2,562 million was hedged by using, in a fair value hedge relationship, positive exchange differences for €75 million resulting on a portion of bonds denominated in U.S. dollars amounting to €2,135 million.

The offsetting of financial derivatives primarily related to Eni Global Energy Markets SpA.

During 2023, there were no transfers between the different hierarchy levels of fair value.

Hedging derivative instruments are disclosed below:

	December 31, 2023				December 31, 2022
(€ million)	Nominal amount of the hedging instrument	Change in fair value (effective hedge)		Change in fair value (ineffective hedge)	Nominal amount of the hedging instrument	Change in fair value (effective hedge)		Change in fair value (ineffective hedge)
Cash flow hedge derivatives
Derivatives on commodity
- Over the counter	310	147		6	83	(4	)
- Future		(23	)		1,350	(3,912	)	275
- Other						9
	310	124		6	1,433	(3,907	)	275
Derivatives on interest rate
- Interest rate swap	128	(19	)		127	24
	128	(19	)		127	24
	438	105		6	1,560	(3,883	)	275

The breakdown of the underlying asset or liability by type of risk hedged under cash flow hedge is provided below:

	December 31, 2023						December 31, 2022
(€ million)	Change of the underlying asset used for the calculation of hedging ineffectiveness		CFH reserve		Reclassification adjustments		Change of the underlying asset used for the calculation of hedging ineffectiveness		CFH reserve		Reclassification adjustments
Cash flow hedge derivatives
Commodity price risk
- Planned sales	(169	)	56		(436	)	4,059		(499	)	(4,666	)
	(169	)	56		(436	)	4,059		(499	)	(4,666	)
Derivatives on interest rate
- hedged flows	(19	)	(6	)			(15	)	16		(11	)
	(19	)	(6	)			(15	)	16		(11	)
	(169	)	50		(436	)	4,044		(483	)	(4,677	)

More information is reported in note 28 — Guarantees, Commitments and Risks — Financial risks.

Effects recognized in other operating profit (loss)

Other operating profit (loss) related to derivative financial instruments on commodity was as follows:

(€ million)	2023	2022		2021
Net income (loss) on cash flow hedging derivatives	6	275		(51	)
Net income (loss) on other derivatives	472	(2,011	)	954
	478	(1,736	)	903

Net income (loss) on cash flow hedging derivatives related to the ineffective portion of the hedging relationship on commodity derivatives was recognized through profit and loss.

Net income (loss) on other derivatives included the fair value measurement and settlement of commodity derivatives which could not be elected for hedge accounting under IFRS because they related to net exposure to commodity risk and derivatives for trading purposes and proprietary trading.

Effects recognized in finance income (loss)

(€ million)	2023		2022		2021
Derivatives on exchange rate	(63	)	(70	)	(322	)
Derivatives on interest rate	2		81		16
Options			2
	(61	)	13		(306	)

Net financial income from derivative financial instruments was recognized in connection with the fair value valuation of certain derivatives which lacked the formal criteria to be treated in accordance with hedge accounting under IFRS, as they were entered into for amounts equal to the net exposure to exchange rate risk and interest rate risk, and as such, they cannot be referred to specific trade or financing transactions. Exchange rate derivatives were entered into in order to manage exposures to foreign currency exchange rates arising from the pricing formulas of commodities.

More information is disclosed in note 36 – Transactions with related parties.