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Eni SpA’s (E - Analyst Report) second quarter 2013 adjusted earnings from continuing operations of 42 cents per American Depository Receipt/ADR (€0.16 per share) failed to meet the Zacks Consensus Estimate of 50 cents and also decreased from the year-earlier earnings of 97 cents per ADR (€0.38 per share). The decline was mainly due to lesser production and lower realized average prices.

Total revenue in the quarter decreased 6.3% to €28.1 billion ($37.3 billion) from the year-ago revenue of €30.1 billion ($39.8 billion). The revenue came below the Zacks Consensus Estimate of $40.9 billion.

Operational Performance

Total liquids and gas production in the quarter was 1,648 thousand barrels of oil equivalent per day (MBoe/d), down 0.5% from 1,656 MBoe/d in the year-ago quarter.

Liquids production was 845 thousand barrels per day (MBbl/d), down 1.3% from the year-ago level of 856 MBbl/d. Natural gas production increased 0.8% year over year to 4,410 million cubic feet per day (MMcf/d).

Gas sales were 19.04 billion cubic meters (Bcm), down 5.5% from the year-ago quarter, reflecting weak sales in the industrial and residential segments as well as a fall in consumption due to the economic downturn.

Financials

As of Jun 30, 2013, the company had cash and cash equivalents of €7.9 billion and long-term debt (including current portions) of €18.8 billion. The debt-to-capitalization ratio was approximately 27%.

In the first half of 2013, net cash generated by operating activities from continuing operations amounted to €4.8 billion. Capital expenditure– mainly related to continuing development of oil and gas reserves – totalled €5.9 billion.

Company Outlook

Eni 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 in line with 2012 level. The start-up of major projects, such as those in Algeria, Angola and Kazakhstan, and production ramp-up at fields started in 2012, in particular in Egypt, will be offset by loss of production in Nigeria and Libya, mature field declines and the effect of asset disposals.

Worldwide gas sales are expected to fall from the 2012 level. The downside would come from the divestment of Galp and renegotiation of long-term supply contracts.

For 2013, refining throughputs are expected to decline versus the 2012 level of 30.01 million tons. The downside would be due to the ongoing industry downturn and the planned shut down of the Venice plant. These negatives are expected to be partly offset by the start-up of the new EST technology conversion plant at Sannazzaro.

Zacks Rank

Eni currently carries a Zacks Rank #5, which translates into a Strong Sell rating. But there are other stocks in the oil and gas industry that are performing well. These include Legacy Reserves Lp (LGCY - Snapshot Report), Pioneer Southwest Energy Partners L.P. , and Parker Drilling Co. (PKD - Snapshot Report), which hold Zacks Rank #1 (Strong Buy).

 

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