Eni SpA (E) remains busy in its asset divestiture program, mainly to support its upstream development activities. The company, in its 2012-2015 Strategic Plan, revealed that it aims to deliver production growth of more than 3% annually over the next four years through the asset sale program.
The divestiture program includes sale of its stakes in Portugal’s Galp Energia and Italian gas transport group Snam. Galp Energia has a market value of EUR10.6 billion and Eni owns 33.34% in Galp, worth around EUR3.5 billion. The company expects to complete the deals before 2014 and strengthen its balance sheet in order to concentrate on big potential projects. The group also plans to offload other non-core assets including those in the North Sea.
We believe that Eni’s outlook for the upcoming period is favorable given its 2012-2015 strategic plans to enhance production and implement steps to control costs and recover profitability. Eni has also boosted its long-term outlook plan to 3% per annum from the previous 2% until 2021 and plans to add 700,000 barrels a day from the new project start-ups within the plan period.
Eni expects its production over the plan period to be aided by significant organic contributions from regions like Russia (Yamal), the Barents Sea, Kazakhstan, Venezuela and the sub-Saharan region. It intends to spend a sum total of EUR59.6 billion (US$78 billion) until 2015, which is 12% higher than the previous plan. Of the total budget, more than 75% is apportioned for upstream activities.
As for the company’s production, total liquids and gas output for the fourth quarter of 2011 dropped more than 14% year over year. The downside was mainly due to the interruption of operations at several Libyan fields and the termination of the GreenStream pipeline activity because of political turmoil.
With the expected strengthening of the global economic scenario along with production ramp-up in its existing fields, we believe that Eni offers ample long-term visibility into profitability over the coming quarters. Notably, new field start-ups at certain large projects are also expected to have a positive impact.
However, we are concerned about Eni’s refining business as its underlying fundamentals are still weak following the political disturbances in the Middle East that could suppress production. The company aims to enhance the flexibility of its plants, along with optimization of the production cycles, while reducing costs and utilizing its proprietary technology.
Immense competition from peers such as Statoil ASA (STO) is also a threat to the company. Hence, we maintain our long-term neutral recommendation on Eni.
To read this article on Zacks.com click here.
Zacks Investment Research
