We reaffirmed our Neutral recommendation on Eni SpA (E - Analyst Report) on Jun 20, 2013, based on its recent international endeavors which we believe will provide ample opportunity for profitability in the coming quarters. The ongoing recovery in the global economic scenario as well as development and commissioning of new fields are the key drivers of this volume growth.
However, sluggish demand, supply glut and competitive pressures in Europe are expected to weigh on the stock. The company holds a Zacks Rank #3, which is equivalent to a short-term Hold rating.
The Italian oil major’s outlook for the upcoming months is favorable, given its 2013–2016 strategic plans to enhance production and implement steps to control costs and increase profitability. The company remains upbeat on its production growth target, expecting more than 4% growth annually, up from 3% expected until 2022.
We believe that Eni’s constant efforts to expand its upstream operations in Cyprus, Egypt, Vietnam, Indonesia, Pakistan and Kenya will go a long way in generating profits in the future. Moreover, project start-ups, inputs from big projects in Algeria, Iraq, Australia, Russia as well as Egypt, as well as its strategic position in non-conventional gas, are expected to augment volumes going forward.
During the first quarter, the group's total liquids and gas production were 1,600 thousand barrels of oil equivalent per day (MBoe/d), mainly attributable to new production start-ups and ramp-ups, particularly in Russia, Egypt and Angola which offset decline in mature fields.
Eni expects its 2013 oil and natural gas production to be higher than the reported 2012 level, given the commissioning of major projects like Kashagan in Kazakhstan as well as other assets including the Angola liquefied natural gas and the gas assets in Algeria. Moreover, stepped-up production at the fields commissioned last year also raises our optimism on Eni’s assured profitability over the coming quarters.
For the second quarter of 2013, the Italian energy giant believes that a certain degree of ambiguity still looms with respect to the economic slowdown, particularly in the Euro zone, and volatile market conditions. This Italian giant expects the uncertainty to prevail in the European gas, refining and marketing and chemicals sectors. Overall demand will likely remain weak due to the ongoing economic dormancy.
The company expects 2013 oil and natural gas production to be higher than the 2012 level given the commissioning of major projects like Angola liquefied natural gas and the gas assets in Algeria. This is expected to be accompanied by stepped-up production at the fields commissioned last year.
Worldwide gas sales are expected to be at par with the 2012 level. Despite experiencing lackluster demand, management seeks to boost sales volumes and market share as well as maintain and develop its retail customer base.
For 2013, refining throughputs are expected to remain at the 2012 level of 30.01 million tons. However, retail volumes in the domestic market are expected to weaken due to the expected reduction in demand for the domestic use of fuels.
We believe Eni’s constant efforts to expand its upstream operations in Egypt, Vietnam, Indonesia, Pakistan and Kenya will augment volumes going forward. Again, project start-ups, inputs from big ventures in Iraq, Australia, Russia and Egypt, as well as its strategic position in non-conventional gas are also expected to contribute to volume expansion.
Other Stocks to Consider
While we prefer to remain on the sidelines for Eni, there are other stocks in the sector that appear more attractive. These include Zacks Rank #1 (Strong Buy) stocks Oasis Petroleum Inc. (OAS - Snapshot Report), Sanchez Energy Corporation (SN - Snapshot Report) and Hornbeck Offshore Services, Inc. (HOS - Snapshot Report).