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Eni Releases Growth-Friendly Strategic Plan for 2018-2021

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Eni SpA (E - Free Report) has released its strategic plan for 2018-2021, signifying a usual progression of the same executed in the previous years and intends to continue boosting all business value.

The company has undergone a successful transformation, resulting in a more integrated set-up, well positioned for further growth in the upstream sector. The mid-downstream businesses have also been reorganized, making them financially more sound and prepared to generate worth even in the low oil price scenarios.

Dividend

Eni intends to increase the dividend for 2018 to €0.83 per share, up 3.75% from 2017, fully payable in cash.

Upstream

During the 2018-2021 period, Eni proposes to invest about €3.2 billion for exploring new acres of land, with resource potential of 2 billion barrels of oil and gas. The company plans to drill around 115 wells in more than 25 countries worldwide and include a new net acreage of 400 thousand square kilometers.

Over the same phase, hydrocarbon production is estimated to grow 3.5% a year. This in turn will be backed by the ramp-up and commissioning of new projects, which is likely to contribute about 700 thousand barrels of oil equivalent per day in 2021.

From 2018 to 2021, Eni expects a cumulative free cash flow generation of €22 billion, subject to the success of the exploration strategy and the extensive portfolio of new conventional projects with a break-even of less than $30/barrel together with a rigorous financial discipline.

Gas and Power

The segment is projected to witness rapid growth in the company’s liquefied natural gas (LNG) portfolio with a target set to reach 12 million tons per year of contracted volumes in 2021 and 14 million by 2025. Further, through the improvement of the equity component, the volumes will be expanded to 70% in 2021 from 30% in 2017.

Moreover, the gas portfolio and retail sector in Europe would register growth. It expects a customer base of about 11 million in 2021, up 25% from 2017.
 
These upsides would help the business attain a wide clientele base of 800 million in 2021, of which 60% would come from retail and increase from 300 million of 2018. Cumulative free cash flow during 2018-21 is predicted at €2.4 billion.

Refining & Marketing and Chemicals

Under this segment, Eni expects strong growth during the planned period with a cumulative free cash flow of more than €2 billion and an EBIT of €900 million in 2021.

To achieve these targets, Eni needs to restart the Sannazzaro EST plant by the end of 2018, boost the green refining capacity as well as the bio-refinery in Gela would come online by the end of 2018 and the second phase of development of Venice would conclude by 2021. Moreover, consolidation of the company’s leading marketing position in Italy, capitalizing on the new sustainable mobility initiatives would also be required.

Chemicals

In this segment, Eni estimates to achieve an EBIT of about €400 million in 2021. This can be attained by boosting integration and efficiency, enhancing the production portfolio of differentiated products, international development, escalating the company’s presence in Asia and growing its commercial footprint in the Americas and in the Far East. Consolidation of organic chemistry is also possible through leveraging new industrial platforms from renewable sources.

New Energy Solutions

The latest New Energy Solutions business is expected to grow over the four-year period. The growth would be attributable to a unique model based on incorporation with existing assets and activities, which will lead to creation of new opportunities and value. This unique model will bring synergies in energy costs for production facilities, thus making more gas available for local consumption or export. The expected return on these projects will be about 10%. Over the next two years, Eni’s new energy capacity will rise by about 400 MW. This will be mainly because of the ongoing projects and those already recognized. Moreover, through investments worth €1.2 billion, Eni will develop 1 GW of new capacity by 2021 and up to 5 GW by 2025, over the medium to long term.

Decarbonization Process

Eni has outlined a decarbonization process and expects to follow a comprehensible and definite climate strategy with total investment of more than €1.8 billion in the four-year period of 2018-21. The model emphasizes a cut in direct GHG (greenhouse gas) emissions by about 43% compared with 2014 through projects designed at reducing process flaring, eliminating fugitive emissions of methane and achieving energy efficiency measures. The new upstream projects in execution have break-even points below $30 per barrel. The second phase of the Venice bio-refinery will also be developed along with a startup at Gela in Sicily by the end of 2018 and consolidation in green chemistry.

Financial Strategy

The capital expenditure for this four-year plan is estimated at less than €32 billion. It will focus on high-value projects with quick returns. Of the total capex, over 80% will be allocated to the upstream, about €3.5 billion is apportioned for the repair and maintenance (R&M) while the chemicals business is anticipated to have about 10% return rate. Moreover, the amount will provide ample flexibility as more than 50% of the investments will not be committed by 2021.

Based on Brent price of $60 per barrel, Eni is assumed to realize an operating cash flow of more than €11 billion in 2018, which might further appreciate above €2 billion in 2021 for the same scenario.

Price Performance

Eni’s shares have gained 3.3% in the last three months against the industry’s 2.6% decline.

 

Zacks Rank & Key Picks

Eni carries a Zacks Rank #3 (Hold). A few better-ranked players in the same sector are Statoil ASA , Pioneer Natural Resources Company (PXD - Free Report) and ConocoPhillips (COP - Free Report) , all three stocks sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Statoil, based in Norway, is a major international integrated oil and gas company. It delivered an average positive earnings surprise of 23.2% in the last four quarters.

Headquartered at Irving, TX, Pioneer Natural Resources Company is an independent oil and gas exploration and production company. It pulled off an average beat of 66.92% in the trailing four quarters.

ConocoPhillips, based in Houston, TX, is a major global exploration and production company. It came up with a positive surprise of 144.45% in the last four quarters.

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