Eni SpA (E) is fairly active in Venezuela. Yesterday, the company signed contracts with the Venezuelan state-owned company Petroleos de Venezuela S.A. (“PDVSA”) to establish mixed enterprises for conducting various upstream and downstream activities. The news followed Eni’s drilling success in the Gulf of Venezuela early last week.
The mixed enterprises are PetroJunin and PetroBicentenario. While the first entity will be dedicated to the development of Junin 5 Block, located in the Orinoco Oil Belt (nearly 550 kilometers south east of Caracas), the second one is for construction and operation of a refinery in the existing industrial coastal complex of Jose. PDVSA and Eni respectively hold 60% and 40% interests in both enterprises.
Recoverable reserves at Junin 5 are estimated in excess of 2.5 billion barrels and the companies plan to achieve an early production phase of 75,000 barrels per day with first oil expected by 2013. Production of 240,000 barrels per day is expected to be reached in 2018 in the long term.
The new refinery will have a capacity of 240,000 barrels per day plus the ability to process additional volumes of approximately 110,000 barrels per day of intermediate streams from other PDVSA facilities, which will provide additional value to the project.
Eni is also actively involved in other blocks in Venezuela. Most notable among these are Corocoro Field (PDVSA 74% and Eni 26%) and Petrolera Guiria (PDVSA 64.25%, Eni 19.5% and Ineparia 16.25%). Eni competes with companies such as Statoil ASA (STO) and Gazprom NEFT (GZPFY).
Eni appears confident about its long-term upstream delivery potential as new fields are continuously coming online with strong strategic rationale. However, our concerns remain over the uncertainty associated with the group’s domestic gas business, as regulators continue to take an active interest in the company, and over the relative profitability of segments across the gas chain. We maintain our Neutral recommendation for Eni with the Zacks #3 Rank (Hold).
ENI SPA-ADR (E): Free Stock Analysis Report
STATOIL ASA-ADR (STO): Free Stock Analysis Report
Zacks Investment Research
