Eni SpA (E) has entered into a definitive agreement with Heritage Oil to purchase a 50% interest and operatorship in blocks 1 and 3A in Uganda for a total consideration of $1.35 billion. There is a provision of an additional consideration of $150 million if certain conditions are not met in the future. Tullow Oil (TLW) holds the remaining 50% interest in these two blocks.
 
Eni has a long-standing relationship with sub-Saharan regions and is also an operator currently 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.
 
Eni’s near-term upstream production is bolstered by acquisitions with a strong strategic rationale. Further, we believe that one of the main features of Eni’s upstream portfolio is its lower reliance on a handful of large fields, both in its existing portfolio and its future growth pipeline.
 
However, we prefer to stay on the sidelines due to the company’s overall weak operational backdrop, exposure to challenging European gas markets, and its balance sheet, which is less flexible than its peers. We recommend a Neutral rating for Eni SpA.
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