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Eni Australia Ltd − the Australian subsidiary of Italian oil and gas company Eni SpA (E - Analyst Report) − confirmed that it will take over ENSCO 109 (350' ILC) jackup rig to drill the Heron South-1 well in the Timor Sea, off northern Australia.
The well will be drilled on the NT/P68 exploration permit where Eni serves as the operator with a 50% interest, while MEO Australia Limited holds the rest. The company was expected to take control of the rig on August 15 that would then go on board on a four-day tow to the Heron South-1 location. The rig is scheduled to reach the well location on or around August 19, with drilling likely to begin several days later.
The drilling campaign of Heron South-1 well is in sync with the Eni’s farm-in agreement signed last year under which the company will receive 50% share in the permit. Following the drilling operation, the company will have 60 days to decide on whether to drill a second Heron well or withdraw from participation in the area.
Meanwhile, under a separate pact, Eni holds an option to gain a 50% interest in the Blackwood gas discovery in the NT/P68 permit. For this, the company was expected to carry MEO’s costs in the course of the acquisition of a minimum of 500 square kilometer (193 square miles) of 3D seismic as well as drill one well in the Blackwood area.
Earlier this year, Eni completed the acquisition of the 766 square kilometer Bathurst 3D survey and has 365 days left since the date of completion to decide upon whether to drill the Blackwood exploration well or not.
We believe Eni’s constant efforts to expand its upstream operations and such endeavors in the Barents Sea, Angola, Indonesia and Australia will go a long way to generate profitable growth in the future.
With the expected strengthening of the global economy and production ramp-up in the existing fields of Libya, we believe that Eni offers ample long-term visibility into profitability over the coming quarters.
Recently, Eni signed a sale and purchase agreement with the U.S. supermajor Chevron Corporation (CVX - Analyst Report) for 25% farm-in to three exploration blocks – LB 11, LB 12 and LB 14, offshore Liberia. The blocks are assumed to be similar to that of Deep Cretaceous discoveries elsewhere in the West African Transform Margin such as Mozambique, Ghana and Suriname. The deal indicates a new market for Eni and will assist the company to further explore the West Africa Transform Margin.
However, we are concerned about Eni’s act of reorganizing projects at major fields, the closure of the Elgin-Franklin platform off the British section of the North Sea and liquids losses in Nigeria. Further, the weak natural gas scenario worldwide, arising out of continued oversupply and low demand could hurt the company’s performance in the near term.
Eni currently holds a Zacks #3 Rank, which translates into a Hold rating for the period of one to three months. Our long-term Neutral recommendation on the company remains unchanged at this stage.