Eni SpA’s (E - Analyst Report) first quarter 2013 adjusted earnings from continuing operations of $1.06 per American Depository Receipt/ADR (€0.40 per share) failed to meet the Zacks Consensus Estimate of $1.08 and also decreased from the year-earlier earnings of $1.78 per ADR (€0.68 per share). The decline was mainly due to lesser production and lower realized average prices.
Total revenue in the quarter increased 6.3% to €33.1 billion ($43.8 billion) from the year-ago revenue of €31.2 billion ($40.8 billion). The revenue came below the Zacks Consensus Estimate of $46.4 billion.
Total liquids and gas production in the quarter was 1,600 thousand barrels of oil equivalent per day (MBoe/d), down 4.9% year over year, mainly due to the shut down of production in the United Kingdom, force majeure actions in Nigeria as well as Libya and mature field declines. Further, the disposals during 2012 relating to the divestment of 10% interest in Karachaganak field and stake reduction in Galp also affected the production. However, the development as well as commissioning of new fields in Russia, Egypt and Angola, offset mature field declines.
Liquids production was 818 thousand barrels per day (MBbl/d), down 5.7% from the year-ago level of 867 MBbl/d. Natural gas production increased 4.2% year over year to 4,290 million cubic feet per day (MMcf/d).
Gas sales were 30.22 billion cubic meters (Bcm), down 1.3% 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.
As of Mar 31, 2013, the company had cash and cash equivalents of €10.1 billion and long-term debt (including current portions) of €23.3 billion. The debt-to-capitalization ratio was approximately 26.3%.
In the reported quarter, net cash generated by operating activities from continuing operations amounted to €2.8 billion. Capital expenditure totaled €3.12 billion (up 18.5% year over year).
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 higher than the 2012 level given the commissioning of major projects like Angola liquefied natural gas and the gas assets in Algeria. This is expected to be accompanied by stepped-up production at the fields commissioned last year.
Worldwide gas sales are expected to be at par with the 2012 level. Despite experiencing lackluster demand, management seeks to boost sales volumes and market share as well as maintain and develop its retail customer base.
For 2013, refining throughputs are expected to remain at the 2012 level of 30.01 million tons. However, retail volumes in the domestic market are expected to weaken due to the expected reduction in demand for the domestic use of fuels.
We believe Eni’s constant efforts to expand its upstream operations in Egypt, Vietnam, Indonesia, Pakistan and Kenya are expected to augment volumes going forward. Again, project start-ups, inputs from big ventures in Iraq, Australia, Russia and Egypt, as well as its strategic position in non-conventional gas are also expected to contribute to volume expansion.
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 Range Resources Corporation , Lehigh Gas Partners LP and EPL Oil & Gas, Inc. , which hold Zacks Rank #1 (Strong Buy).