Eni Boosts Norwegian Gas Yield

Italy-based energy company Eni SpA (E - Analyst Report) has commenced gas flow from the Marulk field located in offshore Norway, about 80 kilometers from the coast.

Marulk is the first field directly operated by Eni in Norway, with a 20% interest. Other partners - Statoil ASA (STO - Analyst Report) and DONG E&P Norge - have interests of 50% and 30%, respectively. Eni’s presence in Norway dates back to 1965 and its current yield there is about 135,000 Boe/d.

The Marulk field is estimated to contain reserves of 74.7 million barrels of oil equivalent (Boe). It has a daily average output of 20,000 Boe/d. Of the daily output, 4,000 Boe/d is allotted to Eni.

The field is part of Production License 122 consisting of two formations – Lysing and Lange – holding gas and condensate.

The field’s Plan for Development and Operation (PDO) received consent from the Ministry of Oil and Energy in July 2010. Following the approval, the field was developed in a short span of two years through a fast-track development plan.

Eni’s constant effort to adjust its portfolio to enhance value for shareholders is supported by the expected strengthening of the global economic scenario. Further, 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.

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 is also a threat to the company.

Per the Zacks Consensus, earnings per share for 2012 and 2013 are pegged at $5.75 and $6.32, respectively. This implies a year-over-year growth of 7.5% in 2012 and 9.9% in 2013.

Eni holds a Zacks #3 Rank, which translates to a Hold rating for a period of one to three months. Longer term, we maintain our Neutral recommendation on the stock.