Eni SpA (E) reported its fourth quarter earnings per ADR of €0.76 ($1.12), compared to €1.08 ($1.42) in the year-earlier quarter and the Zacks Consensus Estimate of $1.06. An increased production volume and a significant improvement in oil prices were the reasons behind this better-than-expected result.
 
Estimate Revisions Trend
 
There was a mixed trend in estimate revisions. For the last 30 days, 1 of the 6 analysts covering the stock raised estimates for the full fiscal 2010 while another moved in the opposite direction. No upside movements were noticed in the last 7 days but one analyst has revised downward. Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $5.55 per share, which would be a significant improvement over the full fiscal 2009 earnings of $4.01 per share.
 
Operational Performance
 
Total production for the quarter was 1,886 Mboe/d (57% liquids), up nearly 2% year-over-year. The increase would have been 2.8% excluding OPEC production cuts. Quarterly production increase was driven by new start-ups and continuing production additions in Congo, Nigeria, the USA and Egypt. However, this was partially offset by mature field declines and unplanned facility downtime.
 
Liquids production in the quarter was 1,073 Mbbl/d, down nearly 1% year over year. However, natural gas production was up 4.8% to 4,668 MMcf/d. Oil realization increased 47.2% year over year to $68.42 per barrel. Natural gas realization was down 37.8% to $5.20 per MMcf.
 
In the reported quarter, net cash generated by operating activities amounted to €1.61 billion ($2.38 billion). Capital expenditure was €3.89 billion ($5.75 billion) for the quarter. Net borrowings at the end of the quarter was €23 billion ($34 billion), representing a net debt-to-capitalization ratio of 31.4%.
 
Outlook
 
While it anticipates releasing its next four-year plans in March, Eni’s sneak preview said this year’s capital expenditures, production of liquids and natural gas, natural gas sales, refining throughputs and retail sales of refined products will remain flat in comparison with the last year.
 
The company continues to pursue its long-term growth strategy through the development of production assets. Eni’s strong presence in North Africa and the Middle East is likely to result in growth. The agreements to produce resources at two giant oil fields in Venezuela and Iraq in the last year are cases in point. However, a declining dividend yield trend and cyclical low returns are currently our concerns. Our Neutral recommendation remains unchanged at this stage.

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