We are maintaining our long-term Neutral rating on Eni SpA (E), reflecting strong oil and gas prices, better product margins, and solid onshore construction and offshore drilling activities in the first quarter 2011. These positives were partially offset by the weak macro backdrop, international business risks and project delays.
During the first quarter of 2011, Eni registered year-over-year improvement in both earnings per share (up 21%) and revenue (up 15.6%) aided by better pricing and higher drilling activities. However, production slipped 8.6% year over year mainly due to the shutdown of operations at several Libya fields and GreenStream pipeline activity arising from the political turmoil.
We remain optimistic about Eni’s 2011–2014 strategic plans intended to enhance production and implement steps to control costs and recover profitability.
The company remains upbeat on achieving the production growth target, which is expected to increase more than 3% annually in the said period. Eni expects hydrocarbon production to reach more than the 2.05 million barrels of oil equivalent per day level by 2014.
Eni’s strong global exposure provides it the opportunity of operating in most of the fertile oil plays, with advance technologies and efficient personnel. Additionally, commencement of new ventures and contributions from big projects such as Junin 5 and Perla places the company strategically well ahead of its peers.
However, we remain apprehensive about the uncertainty associated with the company's domestic gas business and sluggish upstream operations. The company’s growth momentum might be adversely affected by the geo-political disruptions in the Middle East, particularly in Libya along with fluctuations in consumer demand levels and new rules and regulations imposed by the government periodically.
Eni also shoulders a high debt level and faces stiff competition from peers, such as Statoil ASA (STO) and Total SA (TOT).
Based in Rome, Italy, Eni with its consolidated subsidiaries is engaged in oil and gas, electricity generation, petrochemicals, oilfield services and engineering industries. The company currently retains a Zacks #3 Rank, which translate into short-term Hold rating.
ENI SPA-ADR (E): Free Stock Analysis Report
STATOIL ASA-ADR (STO): Free Stock Analysis Report
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