Italy’s Eni SpA (E) plans to evaluate Algeria’s shale gas opportunities, becoming one of the first foreign companies to show interest in North African unconventional resources. This is indicative of the company’s growing confidence on its upstream delivery potential on the back of a consistent flow of new fields with solid strategic rationale.
Substantial amounts of gas have accumulated in geologic environments, referred to as unconventional gas, in joints and fractures of tight sandstones or absorbed into the matrix of shales. Extraction of such unconventional gas has been possible in the past few years, aided by technological advancements.
Eni’s search for unconventional resources is also evident from its acquisition of Minsk Energy Resources in December 2010 through which the Italian company gained 759.5 square miles acreage located in north-east Poland. Eni became the operator of 3 licenses in the prolific Polish Baltic Basin.
Earlier this month, Eni made an important hydrocarbon discovery, Skrugard, in the Norwegian Barents Sea, located approximately 150 kilometers northwest of the Goliat oil field. The discovery was in the PL532 license that was awarded in 2009. The license holds supplementary mineral potential that the company will explore going forward. Moreover, it is expected to add up to 250 million barrels of oil equivalent to reach an overall potential of 500 million barrels.
Last month, Eni revealed its 2011–2014 strategic plans to increase production as well as initiate a program to save costs and recover profitability in the refining and marketing segment. The company remains upbeat on its production growth target, expecting it to increase more than 3% annually in the said period, fueled by major organic developments and contribution from key areas such as Iraq, Venezuela, Angola and Russia.
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., the company’snear-term upstream production prospect is expected to gain traction. Eni’s planned entry into countries like Togo, Democratic Republic of Congo and Poland also appear promising.
However, we remain concerned about Eni’s refining business as its underlying fundamentals are still weak. Moreover, the company faces tough competition from its peers such as Statoil ASA (STO).
Our long-term Neutral recommendation remains unchanged at this stage. Over the short term, the company holds a Zacks #2 Rank (Buy rating).
ENI SPA-ADR (E): Free Stock Analysis Report
STATOIL ASA-ADR (STO): Free Stock Analysis Report
Zacks Investment Research
