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Eni SpA(E - Analyst Report) signed a new service contract with the Government of Ecuador for the Villano oil field in Block 10. The contract is based on a flat fee, which covers the costs of production and new investments, according to the new hydrocarbon law.

About 260 kilometers south east of Quito, the block is located in the Oriente Basin, in the eastern part of Ecuador. The new contract will allow Eni to successfully continue its operations in Ecuador until 2023, with approximately 50 million barrels of oil still to be recovered.

Eni has been operating the Villano field under a service contract with the state oil company Petroecuador since 2000. With the current production of 18 thousand barrels of oil per day (MBbl/d), Eni is celebrating the tenth year of successful operations in Ecuador.

Eni is trying to raise its production volumes from Ecuador. Oil production from the country has been increased to the current rate from the last year’s average production of 14 MBbl/d. Under this new contract, Eni expects to include a new prospective exploration area, the Oglan oil discovery, located 7 km from the Villano processing facility, with an estimated oil reserve of 300 million barrels.

Apart from domestic activities, Eni is fairly active in various international locations. In the third quarter, the company experienced significant exploratory success in Venezuela, Angola and United Kingdom. Eni competes with companies such as Statoil ASA (STO - Analyst Report) and Gazprom NEFT .

While success on the exploration and production front benefits the company, we are concerned about its Gas & Power segment as margins and sales volumes are continuously hit by strong competitive pressures. Our 'Neutral 'recommendation for Eni remains unchanged with the Zacks #3 Rank (Hold).

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