Italian oil giant, Eni SpA (E) has entered into a gas drilling agreement with MEO Australia Limited for two discoveries, Heron and Blackwood, in the Timor Sea off northern Australia. The deal is a part of the company’s strategy to mark its footprint in Australia and the south-east Asian region.
Under the agreement, Eni will secure 50% in the Heron gas discovery by financially backing the drilling of two wells in the Heron Area. However, the Italian company also has a withdrawal clause after the first well has been drilled.
Eni enjoys an additional option to earn 50% in the associated Blackwood gas discovery by gaining a minimum of 500 square kilometer of 3D seismic and drilling one well in the Blackwood area. Separately, an additional option enables Eni to acquire 25% interest in the discoveries.
The company’s Australian subsidiary, Eni Australia Limited, will partner the MEO Australia Limited in the venture and enjoy a 50% operated interest in the permit NT/P68 (where the gas discoveries are located).
We believe the latest deal will boost Eni’s growth prospects in Australia by adding to its already significant gas interests in the country. Eni acts as the operator for the Woollybutt oil field, Blacktip Project as well as Kitan Development Project since it entered Australia in 2000. The company also partners the Bayu Undan gas and condensate field and Darwin.
Eni SpA, with its consolidated subsidiaries, remains engaged in the exploration and production of hydrocarbon, electricity generation, petrochemicals, oilfield services and engineering industries. Although the company’s oil and gas production lagged last quarter due to operational disruptions at several Libya fields and GreenStream pipeline activity, we believe Eni offers ample long-term visibility with the expected strengthening of the global economic scenario along with production ramp up in the existing fields of Nigeria, Egypt, Angola and the United Kingdom.
However, we are cautious regarding the uncertainty associated with the group's domestic gas business, as regulators continue to take an active interest in the company and the relative profitability across the gas chain.
Again, Eni's upstream portfolio carries greater political risk than its peers, since it has the highest exposure to the OPEC countries. Immense competition from peers such as Statoil ASA (STO) is also a threat to the company. Our long-term Neutral recommendation remains unchanged at this stage. Eni currently holds a Zacks #3 Rank, which translates into a Hold rating.
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