Eni SpA (E) recently signed a deal to strengthen its position in Africa. The Italian oil major entered into a definitive agreement with U.K.-based Surestream Petroleum to acquire a stake in the Ndunda Block, Democratic Republic of Congo. This agreement marks the company’s first step into the country.
Located in the country’s western Bas-Congo province, the Ndunda Block is largely unexplored. Eni acquired a 55% interest in the block and is the operator as well. State-run Cohydro and local company International Business Oil SPRL (“IBOS”) retain 8% and 7%, respectively.
As most of the country’s large oil reserves still remain unexplored, several international oil companies have shown their interest in recent months. Total SA (TOT) and Tullow Oil (“TLW”) are the most notable ones. However, the blocks in the east, on the border of Uganda, are treated as most prolific where production is due to start next year.
This acquisition reflects Eni’s growing interest in the sub-Saharan region where its overall production exceeds 450,000 barrels of oil equivalent per day.
Separately, last December, Eni purchased a 50% interest and operatorship in blocks 1 and 3A in Uganda for a total consideration of approximately $1.35 billion. Eni has a long-standing relationship with sub-Saharan regions and is also currently an operator in the main oil-producing countries of Angola, Ghana, Nigeria, Republic of Congo, Gabon and Mozambique.
Given that these blocks are located in prolific onshore sedimentary basins in Africa, Eni expects to contribute to the development of material reserves and further exploration potential. With new fields continuously coming online across Eni’s footprint, its near-term upstream production prospect is gaining traction with a strong strategic rationale.
We have a Zacks #3 Rank (short-term ‘Hold’ recommendation) on Eni ADRs, which reflects our concerns about the company’s significant exposure in the politically unstable countries as well as its weak position in the downstream business.
