Integrated energy company Eni SpA (E) revealed its 2011–2014 strategic plans to boost production, initiate a program to save costs and recover profitability in the refining and marketing (R&M) segments.
The company remains upbeat on its production growth target, expecting it to increase in excess of 3% annually in said period. This guidance is higher than 2.5% announced last year. Significant organic developments and contribution from key areas such as Iraq, Venezuela, Angola and Russia are expected to fuel the growth.
Importantly, Eni has been forced to cut two-thirds of its Libyan output due to the ongoing political unrest in the region. However, it highlighted that total hydrocarbon production will increase to more than the 2.05 million barrels of oil equivalent per day (MMBoe/d) level in 2014. Moreover, Eni intends to spend Euro 53.3 billion in the next three years, mostly on proposed upstream activities.
New project start-ups, contribution from big projects such as Junin 5 and Perla in Venezuela, potential exploration scenario in Togo, Ghana, Democratic Republic of Congo and Mozambique, as well as the strategic position in non-conventional gas are expected to generate considerable output beyond 2014.
Eni aims at improving R&M profitability, with the objective of reaching operating income of Euro 200 million by 2014, at constant 2010 scenario.
With regards to the Gas and Power segment, Eni expects its gas sales to increase by 5% a year on average in Italy and key European markets over the period. Notably, the company added that its gas market will be characterized by the European demand level and anticipates segment adjusted EBITDA of Euro 4.2 billion on a pro-forma basis. This guidance incorporates the planned disinvestment of some international pipelines.
The Italian company appears confident of its relative cost efficiency both at operating and capital levels. Eni sketches a cost reduction program, with Euro 1.7 billion of savings planned over the next four years, driven by acquisitions, streamlined R&M logistics and labor efficiency.
We appreciate management’s growing confidence on upstream delivery potential given the strategically positioned fields in the company’s portfolio. Hence, the company holds a Zacks #1 Rank, which is equivalent to a short-term Strong Buy rating.
However, we are cautious about uncertainties associated with the political unrest in Libya. We expect limited catalysts owing to the absence of major project start-ups in the next four years. Intense competition from its peers, such as Statoil ASA (STO), is also a threat. Hence, we maintain our long-term Neutral recommendation on the stock.
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