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Libya Upturn Boosts Eni's 3Q

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Eni SpA’s (E - Free Report) third quarter 2012 adjusted earnings from continuing operations of €0.49 per share ($1.23 per American Depository Receipt [ADR]) increased 2.1% from the year-earlier adjusted profit level of €0.48 per share ($1.36 per ADR). The quarterly figure also surpassed the Zacks Consensus Estimate of $1.17.

Operating results benefited from the profits arising from the sale of a 5% stake in Galp Energia, higher oil and gas volumes as well as improved operating performance. These were partly mitigated by higher consolidated tax rate (up about 2 percentage points) due to higher taxable profit earned by Eni in countries with higher taxation.

Total revenue in the quarter jumped 23.4% to €31.5 billion ($39.4 billion) from the year-ago revenue of €25.5 billion ($36.1 billion).

Operational Performance

Total liquids and gas production in the quarter was 1,709 thousand barrels of oil equivalent per day (MBoe/d), up 16% year over year, mainly attributable to the ongoing recovery in Libya and development as well as commissioning of new fields in Australia and Russia. Increased production in Iraq also aided the growth.

Liquids production in the quarter was 891 thousand barrels per day (MBbl/d), up 12.4% from the year-ago level of 793 MBbl/d. Natural gas production increased 20.6% to 4,545 million cubic feet per day (MMcf/d).

The company’s gas sales were 19.48 billion cubic meters (Bcm), up 8.5% year over year, reflecting higher sales in the European markets.


As of September 30, 2012, the company had cash and cash equivalents of €5.87 billion ($7.54 billion) and long-term debt (including current portions) of €22.38 billion ($28.77 billion). The debt-to-capitalization ratio was approximately 25.84%.

In the reported quarter, net cash generated by operating activities from continuing operations amounted to €1.91 billion ($2.45 billion). Capital expenditure totaled €3.22 billion ($4.03 billion).

Company Outlook

Eni expects international oil prices to remain strong in 2012, supported by robust demand growth from China and other emerging economies. However, a certain degree of ambiguity still looms with respect to the economic slowdown, particularly in the Euro Zone, and volatile market conditions.

The company expects its 2012 oil and natural gas production to be higher than the 2011 level of 1.58 million barrels of oil equivalent per day (MMBoe/d) given the ramp up in activities in Libya to attain the pre-crisis level. The production ramp up in Libya is expected to be partially offset by project reorganization at major fields, the closure of the Elgin-Franklin platform off the British section of the North Sea and liquids losses in Nigeria.

Worldwide gas sales are expected to be at par with the 2011 level. Despite experiencing lackluster demand, management seeks to boost sales volumes and market share as well as maintain and develop its retail customer base in Italy. Outside Italy, the main growth drivers will be the key markets of France, Germany/Austria and opportunities in the global liquefied natural gas market.

Refining throughputs are expected to be lower on a year-over-year basis. However, retail sales of refined products in Italy and the rest of Europe are expected to weaken due to the expected reduction in demand for domestic use of fuels.


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 over the coming quarters. Notably, development of new fields in Australia and Russia and increased production in Iraq are also expected to have a positive impact. Moreover, Eni SpA has agreed to divest 30% less one share in Snam SpA to state-controlled lender Cassa Depositi e Prestiti. This move will enable Eni to fund its major exploration and production expansion ventures.

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 from continued oversupply and low demand will likely hurt the company’s as well as other natural gas companies like Chesapeake Energy Corporation’s (CHK - Free Report) performance in the near term.

Eni currently carries a Zacks #3 Rank, which translates into a Hold rating. Our long-term Neutral recommendation on the company remains unchanged at this stage.

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