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Derivative financial instruments and hedge accounting

12 Months Ended

Dec. 31, 2021

Derivative financial instruments and hedge accounting

Derivative financial instruments and hedge accounting

24 Derivative financial instruments and hedge accounting

74
	December 31, 2021			December 31, 2020
	Fair value	Fair value	Level of Fair	Fair value	Fair value	Level of Fair
(€ million)	asset	liability	value	asset	liability	value
Non-hedging derivatives
Derivatives on exchange rate
- Currency swap	113	39	2	125	127	2
- Interest currency swap	30	7	2	128	2	2
- Outright	3	11	2	4	7	2
	146	57	—	257	136	—
Derivatives on interest rate
- Interest rate swap	13	43	2	23	74	2
	13	43	—	23	74	—
Derivatives on commodities
- Future	603	496	1	418	447	1
- Over the counter	102	121	2	89	77	2
- Other	1	55	2	5	—	2
	706	672	—	512	524	—
	865	772	—	792	734	—
Trading derivatives
Derivatives on commodities
- Over the counter	12,050	11,939	2	1,167	1,451	2
- Future	6,555	5,002	1	440	525	1
- Options	—	—	—	4	3	2
	18,605	16,941	—	1,611	1,979	—
Cash flow hedge derivatives
Derivatives on commodities
- Over the counter	7	735	2	209	30	2
- Future	193	1,672	1	119	8	1
	200	2,407	—	328	38	—

Derivatives on interest rate
- Interest rate swap	—	3	2	—	—	—
	—	3	—	—	—	—
	200	2,410	—	328	38	—
Options
- Option embedded in convertible bonds	—	—	—	2	2	2
- Other options	—	62	3	—	51	3
	—	62	—	2	53	—
Gross amount	19,670	20,185	—	2,733	2,804	—
Offsetting	(7,159)	(7,159)	—	(1,033)	(1,033)	—
Net amount	12,511	13,026	—	1,700	1,771	—
Of which:
- current	12,460	12,911	—	1,548	1,609	—
- non-current	51	115	—	152	162	—

During 2021, Eni entered into sustainability-linked interest currency swaps with leading banking institutions which provide for a cost adjustment mechanism linked to the achievement of certain sustainability targets. At December 31, 2021, the fair value of these contracts amounted to €1 million.

Eni is exposed to the 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 related to derivatives that did not meet the formal criteria to be designated as hedges under IFRS.

Fair values of trading derivatives 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 values 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 and hedging policies is disclosed in note 28 - Guarantees, commitments and risks - Risk factors.

In 2021, the exposure to the exchange rate risk deriving from securities denominated in U.S. dollars included in the strategic liquidity portfolio amounting to €2,109 million was hedged by using, in a fair value hedge relationship, negative exchange differences for €153 million resulting on a portion of bonds denominated in U.S. dollars amounting to €2,083 million.

Options embedded in convertible bonds at December 31, 2020, related to equity-linked cash settled. More information is disclosed in note 19 - Finance debts.

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

During 2021, there were no transfers between the different hierarchy levels of fair value.

Hedging derivative instruments are disclosed below:

December 31, 2021

December 31, 2020

Nominal

Change in

Nominal

Change in

amount of

fair value

amount of

fair value

the hedging

(effective

(ineffective

the hedging

(effective

(ineffective

(€ million)

instrument

hedge)

instrument

hedge)

Cash flow hedge derivatives

Derivatives on commodity

- Over the counter

(461)

(2,016)

(46)

821

(438)

—

- Future

(364)

534

(5)

541

158

(1)

(825)

(1,482)

(51)

1,362

(280)

(1)

Derivatives on interest rate

- Interest rate swap

—

(741)

(1,479)

(51)

1,362

(280)

(1)

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

December 31, 2021

December 31, 2020

Change of the

underlying

asset used for

the calculation

of hedging

CFH

Reclassification

of hedging

CFH

Reclassification

(€ million)

ineffectiveness

reserve

adjustments

ineffectiveness

reserve

adjustments

Cash flow hedge derivatives

Commodity price risk

- Planned sales

(1,272)

(215)

284

(7)

(941)

(1,272)

(215)

284

(7)

(941)

Derivatives on interest rate

- hedged flows

(3)

—

(3)

—

(1,269)

(215)

284

(7)

(941)

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)	2021	2020	2019
Net income (loss) on cash flow hedging derivatives	(51)	(1)	(2)
Net income (loss) on other derivatives	954	(765)	289
	903	(766)	287

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)	2021	2020	2019
Derivatives on exchange rate	(322)	391	9
Derivatives on interest rate	16	(40)	(23)
	(306)	351	(14)

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.