Italian energy major Eni SpA (E - Free Report) has inked a sale and purchase agreement with U.S. supermajor Chevron Corporation (CVX - Free Report) for 25% farm-in to three exploration blocks – LB 11, LB 12 and LB 14, offshore Liberia.
The three blocks are located between 12 miles and 110 miles south of Monrovia and spread over 9,560 square kilometers on the shelf and continental slope of Liberia in water depths of about 3,000 meters.
The operatorship of the fields has been retained by Chevron with a 45% interest, while Nigeria's Oranto Petroleum holds 30% and Eni has the remaining 25% interest. The blocks are assumed to have tendencies 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. Eni’s presence in Sub Saharan Africa dates back to 1960s and its current daily average yield is around 450,000 barrels of oil equivalent. It mainly derives output from projects in Angola, Congo, Ghana, Gabon, Mozambique, Nigeria, Democratic Republic of Congo, Togo and Kenya.
We believe Eni’s constant efforts to expand its upstream operations by entering new markets and other endeavors in Barents Sea, Angola, Indonesia and Australia will go a long way in generating profitable growth in the future. Management remains upbeat about its long-term upstream delivery potential with its discovery of new fields.
Eni’s outlook for the upcoming months looks favorable, given its 2012–2015 strategic plans to optimize the production cycles, while reducing costs and utilizing its proprietary technology.
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 will likely hurt the company’s performance in the near term.
Eni currently holds a Zacks #3 Rank, which translates into a Hold rating. Our long-term Neutral recommendation on the company remains unchanged at this stage.