Eni SpA’s (E) adjusted fourth-quarter earnings per ADR were at par with the Zacks Consensus Estimate at $1.30 (96 Euro cents per share). The quarter’s earnings was well above the $1.12 per ADR (76 Euro cents per share) earned in the year-earlier quarter.
The year-over-year increase was attributable to solid contribution from exploration and production operations, improvement in crude prices and a stronger U.S. dollar versus the Euro. However, these positives were partially offset by a higher adjusted tax rate.
Total revenue jumped 26% to €28.16 billion ($38.28 billion) in the quarter from the year-ago revenue of €22.36 billion ($33.01 billion).
Operational Performance
Total production in the quarter was 1,924 thousand barrels of oil equivalent per day (MBoe/d) (55% liquids), up a modest by 2% year over year, mainly driven by the start-up of the Zubair field in Iraq. Liquids production in the quarter was 1,049 thousand barrels per day (MBbl/d), decreased 2.2% from the year-over-year level of 1,073 MBbl/d. Natural gas production was up 7.6% at 5,021 million cubic feet per day (MMcf/d).
The company’s gas sales during the quarter were 28.76 billion cubic meters (Bcm), up 1.3% year over year mainly attributable to higher contribution in Italian market. The Refining and Marketing segment continued to suffer in the fourth quarter due to poor refining margins that stemmed from decreasing demand, excess capacity and high inventory levels.
In the reported quarter, net cash generated by operating activities amounted to €3.15 billion ($4.28 billion). Capital expenditure was €3.91 billion ($5.32 billion) in the quarter. Eni paid €143 million ($194.4 million) as dividend in the quarter. Total debt at the end of the quarter was €27.8 billion ($37.8 billion).
Outlook
With new fields continuously coming online across Eni’s footprint, particularly in Italy, Algeria, Norway and Iraq, along with production ramp up in the existing fields of Nigeria, Angola and the U.S., we believe the company’s near-term upstream production prospect is gaining traction with a strong strategic rationale. This is expected to be enhanced further by its entry to new countries, including Togo, Democratic Republic of Congo and Poland.
Although the company experienced a record fourth quarter production, we are concerned about Eni’s refining business as its underlying fundamentals are still weak. Moreover, the Gas & Power segment is also facing strong competitive pressure from its domestic peers. Immense competition from peer such as Statoil ASA (STO) is also a threat to the company.
Our long-term Neutral recommendation remains unchanged at this stage. Over the short term, the company holds a Zacks #2 Rank (Buy rating).
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