ENI Cuts Investments, Dividends To Increase Competitiveness

ENI announced on Friday a 17% decrease in investments over the next four years, and a simultaneous 13% CAPEX cut in the Upstream segment. The Italy-based company, which announced a growing focus on production, added it expects oil prices back at 80-90 $/b by 2018. 

Unveiling its strategy for the coming years, it also suspended its buyback programme, and cut dividends by 28% from 1.12 in 2014 to 0.8 in 2015. It is the first oil major to take such a drastic step. 

“The decision to re-base the dividend in 2015 is appropriate and in line with our strategic objectives considering the new oil price scenario. It sets a level from which sustainable returns can be delivered while maintaining a progressive dividend policy with underlying earnings growth” Claudio Descalzi, Chief Executive Officer, said during the Strategy Presentation in London. 

The stock fell 4.59% percent in Milan trading, as investors fear that the current oil prices might bring along repercussions for ENI’s disposal programme, therefore impacting on futures dividends. 

As investors pointed out during the presentation, current market instability could hinder its ability to sell ‘excess stakes in discoveries’ - which account for more than 50% of its €8 billion disposal 4-year programme. Similarly, investment banks frowned upon the difficulties ENI is experiencing with Snam and Galp Energia. After selling 1% of Galp Energia in January, it still holds 8% of the Portuguese corporation. It also has a 42.9% interest in Saipem. 

“It is in our strategy to de-consolidate Saipem” said Descalzi, adding that ENI will try to make it stronger and more financially stable before selling it. 

Also on Friday, IEA released its Oil Market Report for March, depicting a gloomy picture. 

"Behind the façade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly” reads the report.  

FOCUS ON PRODUCTION

ENI said that the combination of start-ups and ramp-ups should lead to a 5% production growth in 2015, thanks to five major fields coming on stream over the coming months - Val d’Agri (Italy), Goliat (Norway), Perla (Venezuela), Hadrian South (US), and Intisar gas (Libya).  

The six-legged dog targets annual growth of 3.5% in the period 2015-2018, expecting stronger growth in 2015 and 2017.

“The hydrocarbon production growth target is equal to 3.5% per year in the next four years, and will be achieved through the start-up of 16 major projects and the ramp-up of those already started in 2014, with a total contribution in excess of 650kboed in 2018. These projects will have an average breakeven level of 45$/b” Descalzi said. 

The company added that the Kashagan should begin production in 2016, with works starting in May 2015.  

During the Q&A session, investors also voiced concerns about the ‘extreme’ focus of the company on Africa, asking whether the Italian firm sees any room for more diversification.  

“We are acquiring new acreages” answered Descalzi, explaining that ENI’s strong focus on Africa has also to do with the exploration results above expectations in several areas of the continent. 

Logically, ENI will also try to sell stakes in the continent, especially in Central Africa. 

ASSETS IN EGYPT 

Despite a consistent disposal program in Africa, ENI will probably maintain a strong presence in Egypt.  

On Friday, Egypt’s President Abdel-Fattah el-Sisi remarked his intention to push for economic growth and reduction in unemployment. 

Cairo, net exporter of energy till 2013, is now gearing up to become the country paying the highest price for LNG. Keeping in mind BP’s discoveries and investments, it is likely that el-Sisi will try to further promote offshore exploration and production. A positive regulatory framework, and the creation of a large-scale production centre would  support ENI’s activities in Egypt's waters. 

At the end of January, the Milanese company announced a new oil and gas discovery in the West Melehia deep exploration prospect, located in the Melehia licence, in the Western Desert of Egypt, 300 square kilometers west of Alexandria. A couple of weeks before, as a result of the EGAS 2013 bid round, it signed two concession agreements for the North Leil and Karawan offshore blocks.

Sergio Matalucci 

Sergio Matalucci is an Associate Partner at Natural Gas Europe. Follow him on Twitter: @SergioMatalucci