Eni SpA‘s (E) adjusted fourth quarter 2011 earnings per ADR of $1.16 (EUR0.43 per share) experienced a downfall of 9.4% from $1.28 per ADR (EUR0.47 per share) earned in the year-earlier quarter. However, full year 2011 earnings of $5.35 per ADR (EUR1.92 per share) improved 6.2% from the year-ago level of $5.04 per ADR (EUR1.90 per share).
2011 performance was buoyed by significant achievements from the Exploration & Production segment. However, the positives were partially mitigated by a weak macroeconomic situation in Italy and Europe that has impacted its performances in Gas & Power, Refining & Marketing and in the petrochemical sector.
Total revenue in the quarter jumped 7.1% to EUR30.10 billion ($40.61 billion) from the year-ago revenue of EUR22.70 billion ($38.23 billion). Revenue for the full year amounted to EUR109.59 billion ($152.59 billion), up 11.2% from the year-earlier level of EUR98.52 billion ($130.79 billion).
Operational Performance
Total liquids and gas production in the quarter was 1,678 thousand barrels of oil equivalent per day (MBoe/d), down more than 14% year over year, mainly due to the interruption of operations at several Libyan fields and the termination of the GreenStream pipeline activity because of the political turmoil.
Liquids production in the quarter was 896 thousand barrels per day (MBbl/d), down 14.6% from the year-ago level of 1,049 MBbl/d. Natural gas production declined more than 13% to 4,345 million cubic feet per day (MMcf/d), reflecting less output from Libya and a decline in mature fields. Nevertheless, the company achieved organic growth in Congo, Italy and Egypt.
The company’s gas sales were 25.47 billion cubic meters (Bcm), down 11.4% year over year, reflecting weak demand as well as mounting pressure from competitors.
Financials
As of December 31, 2011, the company had cash and cash equivalents of EUR1.50 billion ($1.94 billion) and long-term debt (including current portions) of EUR25.14 billion ($32.55 billion). The debt-to-capitalization ratio was approximately 29.4%.
In the reported quarter, net cash generated by operating activities amounted to EUR3.19 billion ($4.30 billion). Capital expenditure totaled EUR3.89 billion ($5.25 billion).
Company Outlook
Eni expects international oil prices to remain strong for the year 2012, which will be supported by robust demand growth from China and other emerging economies. However, a certain degree of ambiguity still looms with respect to the economic slowdown, particularly in the Euro-zone, and volatile market conditions.
The company expects its 2012 oil and natural gas production to be in line with the 2011 level of 1.25 MMBoe/d on the ramp-up of Italy and Iraq activities as well as start-up of new fields in projects in Algeria and offshore Angola and the gas joint development in Siberia.
Worldwide gas sales are expected to be on par with the 2011 level. Despite experiencing lackluster demand growth in Italy, management seek to boost sales volumes and market share as well as maintain and develop its retail customer base. Outside Italy the main growth drivers will be in the key markets of France and Germany/Austria and opportunities in the Far East.
Again, refining throughputs are expected to be in line with the 2011 level.
Outlook
With the expected strengthening of the global economic scenario along with production ramp-up in the existing fields of Italy and Iraq, we believe that Eni offers ample long-term visibility into profitability in the coming quarters. Notably, new field start-ups at certain large projects in Algeria and offshore Angola and the gas joint development in Siberia 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. Immense competition from peers such as Statoil ASA (STO) is also a threat to the company. Recently, Statoil reported better-than-expected fourth quarter 2011 earnings, mainly attributable to higher liquids and gas prices.
Eni currently holds a Zacks #4 Rank, which translates into a Sell rating. Our long-term Neutral recommendation on the company remains unchanged at this stage.
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