Italian energy giant, Eni SpA (E) has signed a memorandum with the Libyan National Transitional Council (“NTC”) aiming to resume its hydrocarbon operations as well as to strengthen cooperation in the country.
Per the agreement, both the parties will evaluate all possible conditions in order to ensure the resumption of Eni’s activities in Libya’s oil and gas sector as soon as possible and to reinstate the Greenstream pipeline, bringing gas from the Libyan coast to Italy. The 310-mile (520-kilometer) pipeline − not operational since late February − can transport about 11 billion cubic meters of natural gas annually from Libya’s coast to Sicily.
The deal, which comes on the heels of the meeting between Paulo Scaroni, Eni chief executive and rebel leaders, marks Eni as the pioneer oil company to reenter Libyan soil since rebels took over much of the country including capital Tripoli. Prior to the civil war, the Italian company used to be the major foreign oil producer in Libya with a daily production of 273,000 barrels of oil equivalent. The oil giant remains increasingly focused to secure its interests in this oil-rich North African nation.
Again, the deal calls upon Eni to offer technical assistance to appraise the condition of the facilities and oil infrastructure in the country necessary for the safe resumption of operations. The company will also provide refined oil products to NTC to meet the urgent requirements of the Libyan people.
We believe Eni’s outlook for the upcoming months is favorable given its 2011–2014 strategic plans to enhance production and implement steps to control costs and recover profitability. The company remains upbeat on its production growth target, expecting it to increase more than 3% annually in the said period. Eni expects hydrocarbon production to increase to more than the 2.05 million barrels of oil equivalent per day level by 2014.
Moreover, the company is confident about its long-term production outlook and aims to reduce costs as well as strengthen the Refining and Marketing segment. Eni’s portfolio of assets – spanning across Nigeria, Egypt, Angola and the United Kingdom – are also expected to boost its performance in the coming quarters.
However, considering the unpredictable global economic conditions, volatile oil and gas fundamentals and operational disruptions in international regions, we remain on the sidelines, maintaining our long-term Neutral recommendation on the stock. We expect Eni to perform in line with its peers, such as Statoil ASA (STO), and the industry as a whole.
The company retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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